M&A Portfolios and Market Returns

Abstract

M&A activity and the returns of targets and acquirers may provide information about both the companies involved and the overall market conditions. This paper shows evidence that a number of M&A related measurements, such as the number of live deals or the beta of a portfolio of cash targets, may provide predictive information about future returns of the S&P index. It also describes portfolios of M&A targets or acquirers constructed while taking into account risk management constraints, including concentration risk, amount invested, or leverage, as well as deal characteristics and potential competing bids or term improvements, and explores how the performance of these portfolios changes as these constraints are modified.

Keywords: Arbitrage, Hedge Funds, Market Efficiency, Market Sentiment, Mergers and Acquisitions