BrokerDealers Gear Up For More Merger-Arb Deals

BrokerDealer.com blog update courtesy of FINAlternatives and originally published by Bloomberg LP

FinAlternatives LogoWith the economy fully recovered from the financial crisis, Brokerdealers, involved in merger-arbitrage funds, are taking higher risks that are giving a much higher reward.

Merger-arbitrage traders didn’t have enough risk last year. This year, they got more than their share — and it’s not going away.

Companies announced $2.8 trillion of acquisitions, making 2014 the busiest year since before the financial crisis. Unprecedented amounts of money were spent in some industries, such as pharmaceuticals, and the transactions skewed larger than at any other time this century, according to data compiled by Bloomberg. The slew of deals gave merger-arbitrage traders plenty to wager on, after last year’s scarcity of profit opportunities.

The explosion of megamergers brought volatility back to the investing strategy. The deals have been fraught with challenges, from regulatory scrutiny to the plummeting price of oil and the government’s attempt to deter tax inversions. Betting on them didn’t always pay off. More than $100 billion of potential takeovers unexpectedly blew up, like when drugmaker AbbVie Inc. called off its $55 billion purchase of Shire Plc. That burned merger-arbitrage funds, some of which will end the year at a loss even as stocks around the world surge.

“Drought conditions turned into basically flood conditions this year,” Louis Meyer, a New York-based event-driven analyst for Oscar Gruss & Son Inc., said in a phone interview. “Volatility is good, but it can be a double-edged sword. The positive aspect is you do have deals and the trend seems to be continuing. On the other hand, you’ve had real risk emerge and portfolio managers can no longer work on cruise control.”

For the original article from FinAlternative, click here.

 

Private Equity Firm Takes Coffee Break from Israel Company; IPO Provides Exit Strategy

FINALTERNATIVES  BrokerDealer.com blog post courtesy of below extract from hedge fund industry newsletter FINalternatives.com

After six long years that must feel more like 60 for TPG Capital, the private-equity giant is nearly free of an investment that has made it money, but at a price.

TPG and Strauss Group are near a deal to list Strauss Coffee, the Israeli company in which TPG took a 25% stake in 2008. The deal will allow TPG to exit an investment that has produced more headaches and disappointment than solid returns.

When TPG and Strauss consummated their partnership, both had grand expansion plans and hopes to build a global coffee giant. But TPG’s purchased closed just days before Lehman Brothers collapsed, and the deal-making environment dried up, giving Strauss Coffee few takeover targets. In addition, the company struggled in regions like Russia and Eastern Europe.

For the full story, please visit www.finalternatives.com