Breaking down recent M&A activity

Avoca Investment Management has produced analysis on recent M&A activity. The analysis classifies deals that have been launched over the past two years into three categories. These are listed as 1) highly synergistic in-market merger (E.G. TPG bid for IINet) 2) global in-market synergistic (E.G. Expedia bid for Wotif) and 3) nil synergy opportunistic or essentially some sort of timely value play. Their review, as highlighted in the chart below, shows that 7 out of 13 deals over the past 2 years fall into the classification of nil synergy opportunistic. Effectively bidders targeting stocks during periods of sustained weakness and not excluding ‘out of favour sectors’. Their full report (VIEW LINK) provides more detail concluding that their focus on stocks with through cycle value will increasingly see them coincide with what corporates and PEs find compelling. You rarely hear investors say it is possible to plan for M&A activity, this discussion does certainly go a step further in positioning a portfolio for M&A activity.