September 30, 2020 – Over the past month, ten M&A transactions were announced in the U.S. for an aggregate value of $38.5 billion.
This sizable amount of corporate dealmaking continues the rebound in merger and acquisition activity that gained steam last month, when sixteen M&A deals were announced, representing a total value of more than $65 billion.
Biotech and technology deals are ruling the roost in the current environment, perhaps an expression of where executives and directors see growth. The three biotech deals recently announced include:
- Nestle’s acquisition of Aimmune Therapeutics at a 173.8% premium, worth $2.4 billion
- Ionis Pharmaceuticals merger with Akcea Therapeutics at a 59.5% premium, valued at $1.5 billion
- Gilead Sciences massive $21 billion takeover of Immunomedics at a 108.3% premium
These biotech transactions are notable given not only the size, however, the massive premiums being paid for takeovers in the sector. The four technology mergers announced over the month represent approximately $7 billion in value at a more pedestrian average premium of 32.3%.
Seven deals closed over the past 30 days, including pre-COVID transactions such as Francisco Partners’ $4.4 billion leveraged buyout of LogMeIn and ProSiebenSat.1’s strategic $500 million acquisition of Meet Group. These closings support not just the air-tight nature of merger agreements, which are notoriously difficult to wriggle out of, but also the value of taking the volatility of the first quarter’s bear market with a grain of salt. At the depths of the pandemic-led bear market in March, both LogMeIn and Meet Group’s shares were implying a 100% chance that these deals were going to break. Arbitrageurs who were willing to stick to their guns were handsomely rewarded.
One pre-COVID deal fell apart during the month, which the market expected given the substantial discount in which the target’s stock was trading. Nexpoint Hospitality Trust officially abandoned its acquisition of Condor Hospitality Trust. The parties are now fighting over the break fee.
Up in Canada, an interesting potential transaction was unveiled when Altice and Rogers announced a joint $10.3 billion unsolicited offer for Cogeco. Thus far, Cogeco’s board of directors has rebuffed the approach.
Merger spreads have continued to come in, reflective of a calmer environment. The Accelerate Arbitrage Fund (TSX: ARB) currently has approximately 40% of its portfolio dedicated to merger arbitrage.
The below AlphaRank Merger Monitor represents Accelerate’s proprietary analytics database on all announced liquid U.S. mergers. The AlphaRank Merger Arbitrage Effective Yield represents the average annualized return 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.