Merger activity decreased last week with four new deals announced and one deal completed. There was a decline in SPAC activity as well with 25 new SPAC IPOs announced last week compared to 36 in the previous week. The record pace of SPAC IPO’s this quarter resulted in 250 SPACs year-to-date compared to just 11 during the same period in Q1 2020.
I was discussing risks associated with the merger arbitrage strategy with a subscriber last Friday and the big drop a target company might experience if a deal fails. While only 4% or 5% of all deals fail, the post failure drop can be 30% or more depending on the premium paid for the target company. The flip side to this is bidding wars, which sometimes result in significantly higher prices for Straight Path Communications in 2017.
We are now seeing something similar with Coherent COHR and a couple of other deals. Coherent has received multiple bids ever since it agreed to be acquired by Lumentum Holdings LITE on January 19, 2021. The timeline of the ensuing bidding war for Coherent is given below:
- On February 8, 2021, Coherent received an unsolicited acquisition proposal from MKS Instruments MKSI.
- On February 12, 2021, Coherent received an unsolicited acquisition proposal from II-VI Incorporated IIVI.
- On February 16, 2021, Coherent’s board of directors determined to engage in discussions with II-VI Incorporated in response to its unsolicited proposal.
- On March 8, 2021, Coherent’s board of directors determined that a revised acquisition proposal Coherent received from II-VI Incorporated constitutes a “Company Superior Proposal”.
- On March 10, 2021, Coherent entered into a revised merger agreement with Lumentum Holdings.
- On March 12, 2021, Coherent’s board of directors determined that a revised acquisition proposal Coherent received from II-VI Incorporated on March 11, 2021 constitutes a “Company Superior Proposal”. Coherent has notifed Lumentum that it intends to terminate their amended merger agreement unless Coherent receives a revised proposal from Lumentum by March 17, 2021.
The original cash plus stock deal was worth $212.11 per Coherent share based on Lumentum’s closing price on January 19, 2021. The current offer from IIVI values the company at $264.69.
Also received a rival bid from Apollo Global Management APO and Pluralsight PS entered into a revised merger agreement with Vista Equity Partners.
There were two new deals announced in the Deals in the Works section last week.
SPAC Arbitrage
There were 25 new SPAC IPOs and 6 new SPAC business combinations announced last week.
- Evolv Technology and NewHold Investment NHIC announced they have entered into a definitive merger agreement for a business combination that will result in Evolv becoming a publicly traded company.
- Airspan Networks Inc. has entered into a definitive business combination agreement with and into New Beginnings Acquisition (NBA).
- IonQ, Inc., announced that it has entered into a merger agreement with dMY Technology Group, Inc. III DMYI.
- Ambulnz to be renamed DocGo, Inc. and Motion Acquisition Corp. MOTN announced that they have entered into a definitive agreement for a business combination.
- Holley and Empower EMPW announced that they have entered into a definitive merger agreement that will result in Holley becoming a publicly listed company.
- KORE Wireless Group and Cerberus Telecom Acquisition CTAC entered into a definitive merger agreement.
Weekly Spread Changes:
The table below shows weekly spread changes between March 5, 2021, and March 12, 2021.
| Symbol | Quote | Acquiring Company |
Acquiring Company Quote |
Current Spread |
Last Week Spread |
Spread Change Weekly |
Deal Type |
|---|---|---|---|---|---|---|---|
| COHR | 247.9 | Lumentum Holdings Inc. (LITE) | 88.72 | 6.77% | -14.09% | 20.86% | Cash Plus Stock |
| HCAP | 8.26 | Portman Ridge Finance Corporation (PTMN) | 2.17 | 11.62% | 5.36% | 6.26% | Cash Plus Stock |
| DOYU | 14.21 | HUYA Inc. (HUYA) | 26.35 | 35.37% | 29.96% | 5.41% | All Stock |
| PS | 22.29 | Vista Equity Partners (N/A) | 0.94% | -1.46% | 2.40% | All Cash | |
| SOGO | 8.17 | Tencent Parties (N/A) | 8.94% | 7.36% | 1.58% | All Cash | |
| FBSS | 20.72 | Virginia National Bankshares Corporation (VABK) | 30.43 | -0.87% | 1.71% | -2.58% | All Stock |
| CXDC | 1.13 | Faith Dawn Limited and Faith Horizon (N/A) | 6.19% | 9.09% | -2.90% | All Cash | |
| OSN | 4.88 | New Ossen Group Limited (N/A) | 0.00 | 4.51% | 7.82% | -3.31% | All Cash |
| NEOS | 0.9261 | Aytu BioScience, Inc. (AYTU) | 8.59 | 0.92% | 5.41% | -4.49% | All Stock |
| AEGN | 29.13 | New Mountain Capital, L.L.C. (N/A) | -10.74% | 0.00% | -10.74% | All Cash |
Deal Statistics:
| Total Number of Deals Closed in 2021 | 31 |
| Total Number of Deals Not Completed in 2021 | 1 |
| Total Number of Pending Deals | |
| Cash Deals | 55 |
| Stock Deals | 20 |
| Stock & Cash Deals | 12 |
| Special Conditions | 2 |
| Total Number of Pending Deals | 89 |
| Total Deal Size | $522.07181 billion |
New Deals:
- The merger of Athene Holding ATH with Apollo Global Management APO for $6.01 billion in an all stock deal. Under the terms of the transaction, each outstanding Class A common share of Athene will be exchanged for a fixed ratio of 1.149 shares of Apollo common stock.
- The merger of Bryn Mawr Bank Corporation BMTC with WSFS Financial Corporation WSFS for $976.4 million in an all stock deal. Under the terms of the agreement, stockholders of Bryn Mawr will receive 0.90 of a share of WSFS common stock for each share of Bryn Mawr common stock.
- The acquisition of Talend TLND by Thoma Bravo for $2.4 billion or $66 per share in cash.
- The acquisition of China Customer Relations Centers CCRC in a ‘going-private transaction’ by Taiying Group and Taiying International for $101.37 million or $6.50 per share in cash.
Deal Updates:
- On March 8, 2021, Coherent COHR announced that the company’s board of directors has determined that a revised acquisition proposal Coherent received from II-VI Incorporated constitutes a “Company Superior Proposal” under Coherent’s pending merger agreement with Lumentum Holdings. Under the terms of II-VI’s revised proposal, each share of Coherent common stock would be exchanged for $170.00 in cash and 1.0981 shares of II-VI common stock at the completion of the transaction. Coherent has notifed Lumentum that it intends to terminate their merger agreement unless Coherent receives a revised proposal from Lumentum March 11, 2021.
- On March 8, 2021, Pluralsight and Vista Equity Partners announced that they have entered into a revised definitive agreement under which Vista will acquire all outstanding shares of Pluralsight for $22.50 in cash through a tender offer.
- On March 8, 2021, shareholders of RealPage RP approved the company’s merger with Thoma Bravo at a special meeting of shareholders.
- On March 9, 2021, Aerojet Rocketdyne’s stockholders approved the merger agreement providing for the proposed acquisition of Aerojet Rocketdyne AJRD by Lockheed Martin Corporation LMT.
- On March 10, 2021, Coherent announced that it has entered into a revised merger agreement with Lumentum Holdings. Under the terms of the revised merger agreement, each share of Coherent common stock will be exchanged for $175.00 in cash and 1.0109 shares of Lumentum common stock at the completion of the transaction.
- On March 10, 2021, IHS Markit INFO and S&P Global SPGI each received a request for additional information and documentary material, often referred to as a “Second Request,” from the Antitrust Division of the U.S. Department of Justice.
- On March 11, 2021, Australian antitrust regulators announced that they have started an informal review of Salesforce’s CRM planned takeover of Slack WORK.
- On March 11, 2021, IHS Markit announced that its shareholders voted overwhelmingly to approve its merger with S&P Global.
- March 11, 2021: According to Bloomberg, Apollo Global Management APO has made a rival bid for Aegion AEGN offering more than New Mountain’s $26 per share but less than $30 per share.
- On March 12, 2021, Coherent announced that the company’s board of directors has determined that a revised acquisition proposal Coherent received from II-VI Incorporated on March 11, 2021 constitutes a “Company Superior Proposal” under the terms of Coherent’s pending revised merger agreement with Lumentum Holdings (LITE) dated March 10, 2021.
- On March 12, 2021, shareholders of HighPoint Resources Corporation approved the company’s merger with Bonanza Creek Energy at a special meeting of shareholders.
Closed Deals:
- The acquisition of Oxford Immunotec Global (OXFD) by PerkinElmer PKI on March 8, 2021. It took 60 days for this deal to be completed.
Top 10 deals with largest spreads:
| Symbol | Announced Date |
Acquiring Company |
Closing Price |
Last Price |
Closing Date |
Profit | Annualized Profit |
|---|---|---|---|---|---|---|---|
| DOYU | 10/12/2020 | HUYA Inc. (HUYA) | $19.24 | $14.21 | 06/30/2021 | 35.37% | 119.52% |
| APHA | 12/16/2020 | Tilray, Inc. (TLRY) | $23.11 | $20 | 06/30/2021 | 15.53% | 52.49% |
| CHNG | 01/06/2021 | UnitedHealth Group Incorporated (UNH) | $25.75 | $22.9 | 12/31/2021 | 12.45% | 15.56% |
| HCAP | 12/23/2020 | Portman Ridge Finance Corporation (PTMN) | $9.22 | $8.26 | 06/30/2021 | 11.62% | 39.28% |
| XLNX | 10/27/2020 | Advanced Micro Devices, Inc. (AMD) | $139.68 | $125.45 | 12/31/2021 | 11.34% | 14.18% |
| WLTW | 03/09/2020 | Aon plc (AON) | $246.24 | $222.76 | 06/30/2021 | 10.54% | 35.62% |
| ATH | 03/08/2021 | Apollo Global Management, Inc. (APO) | $55.24 | $50.14 | 01/31/2022 | 10.18% | 11.50% |
| SOGO | 09/29/2020 | Tencent Parties (N/A) | $8.95 | $8.17 | 07/31/2021 | 8.94% | 23.46% |
| AJRD | 12/20/2020 | Lockheed Martin Corporation (LMT) | $51.00 | $47.16 | 12/31/2021 | 8.14% | 10.18% |
| IPHI | 10/29/2020 | Marvell Technology Group Ltd. (MRVL) | $175.55 | $162.99 | 12/31/2021 | 7.71% | 9.63% |
Conclusion:
Four deals received approval from their shareholders last week, amidst deals that had competitive bids and agreements being revised in spite of a decreased activity in both the M&A and SPAC areas. An article titled, ‘Short Sellers Boost Bets Against SPACs‘, that was published Sunday morning by the Wall Street Journal, resonates with our observation from last week, where we mentioned, “Just like there were opportunities on the long side of the SPAC trade, we are likely to see interesting opportunities on the short side after some of the more speculative SPAC business combinations stumble in the coming years.”
Disclaimer: I have long positions in Change Healthcare and Otelco. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.
Disclaimer: Please do your own due diligence before buying or selling any securities. We do not warrant the completeness or accuracy of the content or data provided in this email.
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