June 2, 2025 – Like most segments of the capital markets, merger and acquisition activity is cyclical and subject to the whims of market sentiment.
When risk assets are performing well, volatility is low, and credit markets are open, animal spirits come alive and deal activity surges. From an acquiror’s perspective, they harbour confidence in their future economic prospects, while the credit required to finance an acquisition is readily available.
Conversely, as risk assets decline, volatility spikes, and credit markets shut, then deal activity plummets. Not only is sentiment weak, making expansion via acquisition difficult to justify, but bid-ask spreads between acquirors and targets widen as buyers want to pay the low price reflected by crummy market expectations, while sellers want to maintain asking prices from the peak valuations experienced during the previous bull market.
Given April’s broad and rapid decline in risk assets, along with the tightening of credit conditions, M&A activity slumped. April marked the lowest level of U.S. public merger transactions since May 2020. Just nine deals worth an aggregate of $7.6 billion were tallied last month, reflecting the weakest deal making environment in five years.
That was then, this is now. Merger activity bounced back with a vengeance in May, rising more than six-fold to approximately $50 billion of public U.S. M&A during the month. While by no means gangbusters, the current market environment is reflective of business as usual conditions, as May’s aggregate deal value was just -18% below the five-year monthly average deal volume of $62 billion.
Source: Accelerate
Several notable dynamics regarding merger and acquisition activity occurred in May. We witnessed a material rebound in private equity transactions, with several noteworthy buyouts announced. The firm that kicked off the private equity bustle was 3G Capital, which struck an $11 billion LBO of Skechers at the start of the month. Next, we saw TPG with a friendly $2.2 billion buyout of AvidXchange Holdings, along with Blackstone teaming up with the TaskUs co-founders to take the company private for $1.6 billion. Lastly, we saw the big kahuna – TXNM Energy signing a definitive agreement for an $11.5 billion buyout by Blackstone Infrastructure.
The second notable dynamic we witnessed in recent North American M&A was the rise of activist-led corporate sales, specifically in the Canadian market. Parkland struck a deal to merge with Sunoco in a $9.1 transaction after what seemed like years of activist pressure on the target. Coincidentally, and mere weeks later, the founder of InterRent REIT teamed up with the massive Singaporean sovereign wealth fund, GIC, to take the real estate investment trust private for $4.0 billion in what seems like a case of “go private to make the activist go away.”
The third deal dynamic that we found fascinating was the return of the hostile takeover to the Canadian oil patch. Last month, Strathcona Resources launched a $6.2 billion hostile takeover offer for MEG Energy, marking the first significant hostile takeover attempt in the Canadian oil patch since Husky made a play for MEG back in 2018. If successful, it would be the first large consummated hostile takeover in the Canadian oil patch since Suncor acquired Canadian Oil Sands in 2015. Corporate Calgary is a small world, and it is quite rare to see a hostile takeover given the cozy boardroom atmosphere. Nevertheless, hostile takeover’s provide many twists and turns, and we detailed our thoughts on the deal’s outlook in our recent memo, Oil Patch Under Siege: Hostile Bid Ignites Corporate Showdown.
In a refreshing turn of events, SPAC is no longer a dirty word. After years of unexciting returns, special purpose acquisition companies are experiencing a resurgence in excitement. More importantly, they are making a lot of money for investors, providing significant upside optionality in the current market environment, along with their ever present downside protection via their redeemable NAV (consisting of U.S. Treasury bills).
In our recent memo, Return of the SPAC, we detailed how one particular blank check merger kicked off a new SPAC bull market:
“After announcing its $3.6 billion merger with Twenty One Capital, the SPAC shares [Cantor Equity Partners] rallied more than 200% from their cash value of just above $10.00 to trade north of $30.00 per share, demonstrating the tremendous upside optionality inherent to SPAC arbitrage.”
Source: Google Finance
Those who participated in the initial public offering of CEP (as did the Accelerate Arbitrage Fund (TSX: ARB)), experienced a “heads we win, tails we win big” proposition. The downside case was a return of T-bills + 1.5%, given the SPAC’s trust account started with $10.15 right out of the gate (the IPO price was $10.00). The upside case was a return of more than 200% – Not bad for a fixed income alternative investment.
And CEP was not the only deal exhibiting upside optionality for investors. Several SPACs have risen materially above their trust values as the market warms to recently announced blank check mergers. More than 10% of the SPAC universe (10 out of 181) trade at prices greater than 10% above their cash in trust, signalling rising positive investor sentiment for SPAC mergers.
Continuing with the theme of the new SPAC bull market reminiscent of 2020, we saw a significant rebound in new IPOs. The month of May saw 24 new issues come to market, raising nearly $5 billion in total and marking the busiest month for SPAC IPOs since January 2022. Year-to-date, almost $10 billion has been raised across 53 SPAC IPOs, already exceeding the total of last year and on track to be the third busiest SPAC IPO environment next to 2020 and 2021 (records unlikely to be beaten).
Source: Accelerate
While the common Wall Street adage, “Sell in May and go away”, may apply to equities, it appears to not apply to the asset classes of M&A and SPACs. After a recent lull in these markets, they have bounced back markedly, while handsomely rewarding those investors who participate.
The AlphaRank.com 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.
