M&A is back (exclamation point!), thanks to the Kradbury affair, and with it lists of possible acquisition targets to buy.
RBS have made their own contribution to M&A speculation on Wednesday morning with a compendium of six potential acquirers to short. That’s in terms of credit — not equity. Here’s what they say:
- Unlike 2004-2007, this M&A is driven by trade buyers (i.e. not private equity/sovereign wealth funds) and is less predicated on the availability of cheap debt. Banks are less keen to lend, particularly if ratings are cut below investment grade, whilst companies themselves are also more cautious post the liquidity squeeze of 2008-2009. Hence, equity is likely to be an important part of most large bids, either as part of the consideration or an associated rights issue.
- As a result, the current round of M&A is less destructive for fundamental credit quality. However, rating attrition is likely to occur, whilst bridging loans and subsequent bond refinancing is likely to adversely impact the CDS and bonds of acquirers.
- We have highlighted below a list of 6 credits which we believe there is a significant probability they will make a large acquisition over the next year. Overleaf, we have a brief rationale for our short recommendations.
- We recommend buying protection in the 6 credits, funded by selling the Main index, with a target of unwinding the trade in 6 to 12 months.
More details in the usual place.
Related links:
An M&A cheat sheet – FT Alphaville
M&A is not even resting - FT Alphaville
Kradbury: What the CDS market thinks – FT Alphaville