March 31, 2022 – In last month’s Merger Monitor, Will Russia Affect M&A?, I asked, “Is this rise in yields [due to the war], and accompanying perception of increased deal risks, justified?”.
Since then, $83.6 billion of North American mergers were announced, with 16 in the U.S. and 6 in Canada.
Additionally, $97.6 billion of North American deals closed on their terms over the past month, with 19 closing in the U.S. and 1 in Canada. There were no deals terminated.
It is not just industry deal makers executing on transactions. In March, there were $32.5 billion of leveraged buyouts, signalling high corporate confidence and adequate financial conditions from private equity firms. When things get wobbly in markets, it is typically the private equity firms that leave the market first.
At this point, the surge in deals is telling us that the war in Ukraine has had nil effect on the announcement rate, and completion rate, of mergers and acquisitions.
Strategic and financial acquirers continue their buying spree, unabated by recent geopolitical conflicts and the accompanying equity market volatility.
Nonetheless, market participants are not exhibiting the same confidence level, as merger arbitrage yields remain high.
Source: Accelerate, Bloomberg
Merger arbitrage yields are attractive at 9.3%, both on an absolute basis and relative to the 6.0% offered from high yield bonds,
Year-to-date, there have been three terminated transactions. Two were terminated due to regulatory intervention and one broke due to shareholders voting against it. None were due to the buyer getting cold feet.
With 47 deals closed year-to-date, 2022’s deal success rate of 94% is precisely in line with the 94% of deals that have closed successfully over the past decade.
Source: Accelerate
In addition, there has been one deal revised upward this year and none revised downward.
To answer my question from last month: No, the rise in arbitrage yields due to the war, and the accompanying perception of increased deal risks, is not justified.
Investors can benefit.
The AlphaRank Merger Monitor below represents Accelerate’s proprietary analytics database on all announced liquid U.S. mergers. The AlphaRank Merger Arbitrage Effective Yield represents the average annualized returns of all outstanding merger arbitrage spreads and is typically viewed as an alternative to fixed income yield.
Each individual merger is assigned a risk rating:
- AA – a merger arbitrage rated ‘AA’ has the highest rating assigned by AlphaRank. The merger has the highest probability of closing.
- A – a merger arbitrage rated ‘A’ differs from the highest-rated mergers only by a small degree. The merger has a very high probability of closing.
- BBB – a merger arbitrage rated ‘BBB’ is of investment grade and has a high probability of closing.
- BB – a merger arbitrage rated ‘BB’ is somewhat speculative in nature and has a greater than 90% probability of closing.
- B – a merger arbitrage rated ‘B’ is speculative in nature and has a greater than 85% probability of closing.
- CCC – a merger arbitrage rated ‘CCC’ is very speculative in nature. The merger is subject to certain conditions that may not be satisfied.
- NR – a merger rated NR is trading either at a premium to the implied consideration or a discount to the unaffected price.
The AlphaRank merger analytics database is utilized in running the Accelerate Arbitrage Fund (TSX: ARB), which may have positions in some of the securities mentioned.
* AlphaRank is exclusively produced by Accelerate Financial Technologies Inc. (“Accelerate”). Visit AccelerateShares.com for more information. Disclaimer: This research does not constitute investment, legal or tax advice. Data provided in this research should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information in this research is based on current market conditions and may fluctuate and change in the future. No representation or warranty, expressed or implied, is made on behalf of Accelerate as to the accuracy or completeness of the information contained herein. Accelerate does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed. Accelerate may have positions in securities mentioned. Past performance is not indicative of future results.
