Buyer’s Market Could Fuel Mergers and Acquisitions ETFs

As businesses look to reopen around the globe following the Covid-19 pandemic, the mergers and acquisitions (M&A) industry is not immune to its own set of changes. However, industry experts are saying that it’s a buyer’s market, which could fuel M&A-focused exchange-traded funds (ETFs).

“COVID-19 has resulted in more of a buyers’ market, especially for those with readily available funds, after a number of years in which sellers held the upper hand,” wrote Carl Powlson, a partner in Shepherd and Wedderburn’s corporate team, per an article in The Herald.

Some of the key issues include purchase price adjustments that address whether “the parties agree a purchase price mechanism that gives adequate protection and certainty for both sides? Buyers will seek protection against negative developments in the target business by means of completion accounts mechanics (rather than locked box accounts), and also by means of post-completion protection provisions relating to, for example,  deferred consideration, purchase price retention and earn-out mechanics.”

Other factors related to purchasing agreements in particular include deal conditionality and termination rights; interim operating restrictions and covenants; non-Covid-19 issues; warranties; warranty and indemnity insurance; and finally, boilerplate clauses.

Click here for the full article on how Covid-19 is changing the mergers and acquisitions industry.

M&A Exposure via ETFs

For M&A exposure via exchange-traded funds (ETFs), one fund to look at is the IQ Merger Arbitrage ETF (NYSEArca: MNA). MNA seeks investment results that correspond generally to the price and yield performance of its underlying index, the IQ Merger Arbitrage Index, which seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions, and other buyout-related transactions.

Here are a couple of other ETFs to look at with exposure to mergers and acquisitions:

  1. First Trust Vivaldi Merger Arbitrage ETF (MARB): seeks to provide investors with capital appreciation. Under normal market conditions, the fund seeks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. It’s portfolio may include equity securities issued by U.S. and non-U.S. companies, including American Depositary Receipts (“ADRs”), and derivatives, including total return swaps. The fund may invest in securities issued by small, mid and large capitalization issuers.
  2. ProShares Merger ETF (MRGR): seeks investment results, before fees and expenses, that track the performance of the S&P® Merger Arbitrage Index (the “index”). The fund is designed to track the performance of the index and provide exposure to a global merger arbitrage strategy. The index, and by extension the fund, seeks to produce consistent, positive returns in virtually all market environments, although there are no assurances it will achieve this result.

For more market trends, visit ETF Trends.