The best magazine
22 February 2012
LONDON (Dow Jones)--Hedge funds look set to take center stage as European merger-and-acquisition activity starts to pick up after a long drought and as bets on winning prices and bidders trigger dramatic rises in the stock price of target companies.
Just Monday, shares in TNT Express NV (TNTE) surged 60% after it rejected United Parcel Service Inc.'s (UPS) EUR4.9 billion takeover offer late the previous week and investors speculated that any eventual deal with either UPS or another suitor would be done at a much higher price.
The same day, stock in financial software company Misys PLC (MSY.LN) rose over 10% after it confirmed a rival approach from U.S. buyout firm Vista Equity Partners, having been in agreed talks with Swiss rival Temenos Group AG (TEMN.EB) for several weeks.
Hedge funds have been active in both situations with several taking stakes and increasing positions in the target companies.
"We are seeing more M&A deals in Europe, thus creating more investment opportunities," said Amit Shabi, chief executive of Bernheim Dreyfus and Co., a Paris- and Geneva-based, event-driven hedge fund.
"Spreads remain at a very attractive level despite the bull market and the decrease of volatility observed since the beginning of the year. This means that most people consider that we could see a rise in volatility since key issues such as Greece, sluggish growth and deficits haven't been fully addressed yet," he added.
Arbitrage hedge funds make money by "capturing the spread" between the share price of a target company when a deal is announced and the eventual price offered by an acquirer. As long as the deal closes, the hedge fund should make money--and the higher the eventual price, the more the hedge fund will make.
In the case of TNT, a takeover deal will pay off handsomely for hedge fund Jana Partners, which together with Canada's Alberta Investment Management Corp. owns just over 5% and has been agitating to get its own board members on TNT's board, including a former M&A executive from UPS.
Other hedge funds, such as Geneva-based Jabre Capital Partners and New York-based D.E. Shaw have also joined the fray and currently hold stakes of 5% and 1.64%, respectively, in Misys. One hedge fund manager said that this is just one of several merger situations it has seen over the past week or so as confidence over a Greek rescue package helped dispel euro-zone concerns.
M&A experts expect the buying activity to continue as large cap and strong midcap companies look for growth in products or geographies by making acquisitions.
"Corporates have improved balance sheets and have enormous cash reserves--they are well-positioned to make strategic acquisitions," said Pip McCrostie, global head of transactions at Ernst & Young.
"As a result, we are seeing a number of suitors lining up for attractive assets--and we will see plenty more," she added.
For example, GlobeOp Financial Services SA (GO.LN) has seen its share price creep up even further after it attracted interest from U.S. rival SS&C Technologies Holdings (SSNC) following an offer from TPG.
The U.K.-based hedge fund administrator had already seen its shares rise 47% to 430 pence following confirmation of talks with the U.S. private equity giant and its subsequent recommended offer of GBP508 million. They have since risen further and are currently 465 pence.
New York-based hedge fund TIG Advisors for one has been steadily building up its stake in GlobeOp since the original announcement of takeover talks in January, it currently has a 1.85% stake. London-based Cheyne Capital Management has a 2.39% stake.
The battles for both GlobeOp and Misys remain wide open not least because each takeover target faces one all-cash and a competing share offer. Investors are generally expected to prefer cash over longer term and more uncertain value but analysts have been bullish on the "strategic fit" and synergies that the trade buyers offer.
For example Windsor, CT-based SS&C makes software and services for a range of financial clients and a merger with GlobeOp, which manages $173 billion in assets for its hedge fund clients, would bring "material cost and revenue synergies" enabling it to outbid TPG, said Collins Stewart.
Source: ...