At GAM Investments’ latest Active Thinking Forum, two of our brightest investment minds discussed high levels of M&A activity and commented on the implications of Facebook’s recent outage.
Roberto Bottoli – Merger Arbitrage
From a merger arbitrage perspective, the current M&A market continues to provide a rich pipeline of new deals. Global M&A activity was unusually strong in August, with industrial and private equity buyers engaging in competitive deals more frequently than in the past. We expect M&A levels to remain high for remainder of 2021 and into 2022, driven by low rates, low spreads, cash on corporate balance sheets, accommodative stances from central banks and governments, plus heavy private equity activity. Risks relating to terminations as a result of Covid-19 have also largely been removed as most contracts now include an explicit carve-out for pandemics, epidemics or similar health emergencies. Antitrust policies in the US (new administration) and China (rule changes) remain risks.
Elsewhere, we continue to see arbitrage opportunities in the special purpose acquisition company (SPAC) market. SPACs park liquidity raised in initial public offerings (IPOs) in segregated trust accounts which are used only to pay back shareholders who exercise redemption rights or to pay for an acquisition. The money held in these trust accounts can only be invested in Treasuries which mature in less than 180 days. One arbitrage opportunity involves buying SPAC shares at a discount to their net asset value and exercising redemption rights; effectively adding a low risk source of income by buying Treasuries at a discount.
Mark Hawtin – Global Equities
Crypto markets have been resurgent in recent days with gains for bitcoin and other digital assets largely attributable to Facebook’s well-publicised outage. The ripple effects of the disruption, which saw Facebook-owned social media services WhatsApp and Instagram go offline, were significant for many businesses and users overall. Such events show the dependency on very large platforms and, in our view, heighten the appeal of a more decentralised world based on blockchain. Aside from temporary outages, we believe a slowdown in economic growth and increased regulatory scrutiny on data present long-term challenges for the likes of Facebook and others heavily dependent on digital advertising. Elsewhere, we currently see opportunities on the short side among some work-from-home stocks and also believe select online retailers without unique offerings may struggle, with certain names already warning of a slowdown. We continue to see long-term investment opportunities related to disruption in more traditional areas, like industrials and healthcare, which have not yet been heavily disrupted but are likely to be through the proliferation of data using 5G, artificial intelligence and the Internet of Things.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.