Carmignac Portfolio Merger Arbitrage Plus

The beginning of the month was fairly calm for the Merger Arbitrage strategy in an environment that is still generally very buoyant for equities.

The second part of February proved to be more eventful. In a bear market phase, merger arbitrage discounts showed their resilience supported by several events favourable to the strategy.

First, there were two increased bids. The first in the US on the company H&E Equipment Services: Herc Holdings offered a price 20% higher than the initial offer of United Rentals, which, in fact, already presented an acquisition premium of nearly 85%. The second in Europe with the company Anima, on which the buyer Banco BPM increased its price from 6.20 euros to 7.00 euros a share.

Then, the US antitrust authorities finally gave their approval for the acquisition of HashiCorp by IBM, which was still subject to some uncertainties. This news suggests a more accommodating attitude to M&A transactions in the future on the part of the new administration.

Finally, M&A activity has been robust in Europe with some significant deals: in the Oil & Gas sector, the merger, still at a preliminary stage, between the Norwegian Subsea 7 and the Italian Saipem for €5.7 bn, the takeover of Just Eat Takeaway.com by Prosus for €5.2 bn and the continued consolidation in the Italian banking sector with BPER Banca's bid for Banca Popolare di Sondrio for €4.4 bn.

The HFRX Merger Arbitrage index consequently showed a positive performance of 0.74%.

The fund posted a positive performance over the month.

The main contributors to the positive performance were: H&E Equipement Services, HashiCorp and Enstar Group.

The main detractors to the performance were: Hess and Discover Financial Services.

The fund's investment rate is 114%, up on the previous month.

With 46 portfolio positions, diversification remains satisfactory.

2024 was a very complicated year for Merger Arbitrage: strong antitrust pressure, particularly in the US, with some deals blocked (Capri, Albertsons) and others under increased scrutiny (Hess, Pioneer Natural Resources, Catalent or Juniper), recovery in M&A activity not as strong as expected due to this increased scrutiny from the competition authorities, highly volatile deals (DS Smith, United States Steel, China Traditional Chinese Medicine) which led to the unwinding and closure of several Merger Arbitrage portfolios within the largest investment platforms.

Outlook for 2025 is much brighter, thanks to a more favorable antitrust environment for M&A activity worldwide: change of administration in the US following Trump's election, publication of the Draghi report in Europe recommending the emergence of national champions to face global competition, regulator in the UK pushed by the political class to prioritize economic activity, Japanese market continuing to open up to foreign capital. Lower interest rates should also drive M&A activity in the quarters ahead.