LONDON (Reuters) – Hedge funds that bet on takeover action still hope to squeeze more profits out of the merger and acquisition boom despite signs it may be close to a peak.
Fund managers who use what the industry calls event-driven strategies, such as buying shares in a potential target or selling short a likely bidder, have produced bumper returns in recent years as deals have grown in number and size.
Global corporate merger activity has surged to a record high of $2.5 trillion (1.2 trillion pounds) in the first half of this year as private equity investors and chief executives have taken advantage of the low cost of borrowing, strong cash flows and attractive valuations to bid for more companies than ever.
But the first signs of caution are now starting to show as interest rates rise and banks struggle to sell some takeover-related debt.
Some buyout chiefs say the best may be over.
“I’m hearing … that deals six to eight weeks ago were typically oversubscribed eight to 12 times, whereas deals in the last two weeks are oversubscribed one-to-two times,” said Stephen Czech, managing director and portfolio manager at Contrarian Capital Management.
