{"id":71118,"date":"2018-05-02T01:31:21","date_gmt":"2018-05-01T23:31:21","guid":{"rendered":"http:\/\/beta.next-finance.net\/news\/most-turbulences-are-behind-for-merger-arbitrageurs\/"},"modified":"2020-01-01T22:19:33","modified_gmt":"2020-01-01T21:19:33","slug":"most-turbulences-are-behind-for-merger-arbitrageurs","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/news\/most-turbulences-are-behind-for-merger-arbitrageurs\/","title":{"rendered":"Most turbulences are behind for merger arbitrageurs"},"content":{"rendered":"

Markets remained treacherous with multiple micro, macro and political movers. Trade concerns receded but
\nremain live as the U.S. tackles Chinese tech. Investors also weighted the implications of a U.S. withdrawal
\nfrom the Iran nuclear agreement. We expect the issue to hover at least until the summer and Iran to be initially
\ncautious in its response before considering a more radical path. Besides, investors kept on digesting (strong)
\nEPS reports, particularly sensitive to any guidance suggesting an earnings peak. Overall, investors are
\nincreasingly pricing a growth stagnation with higher inflation, in the U.S. especially. As a result, cyclical assets
\nweakened, rates surged and boosted USD. This helped European and Japanese markets outperform.<\/p>\n

CTAs and the U.S. long-biased managers were the most affected by current uncertainties. Merger funds also
\ntook a hit from bond yields and several deals\u2019 unfavorable developments. The other strategies were resilient.<\/p>\n

Since February, merger spreads widened meaningfully.<\/p><\/blockquote>\n

Rising bond yields, a key component of merger
\nreturns, contributed to about half of the widening. A hike of 50bp in Libor implies about a 150bp widening in
\nannualized spreads. A second key factor was increased regulatory and deals\u2019 duration uncertainty, in the
\nU.S. but also for operations related to China one way or the other. An obvious example was the NXP
\nSemiconductors \/ Qualcomm deal, under pressure from these factors and a key negative contributor for many
\nfunds. Market volatility also played out, as well as the growing share of jumbo deals, usually more sensitive
\nto adverse developments. Amid very supportive conditions for M&A (from the tax reform in particular), weaker
\ndeal rationales are also mentioned as a greater source of deal volatility.<\/p>\n

These turbulences are not shaking managers\u2019 faith, to the contrary. While they expect rising rates to translate
\ninto structurally higher deal spreads going forward, they believe most of the downside is now priced, with
\nmore appealing entry prices. Their high leverage reflects their confidence.<\/quote><\/p>\n

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