Event-driven funds will be happy to see a resurgence of M&A arbitrage opportunities in Asia, says Gregory Lafitte, head of Asian merger arbitrage at Louis Capital Markets (LCM) in Hong Kong.
“There are four distinct issues that point to a growth in mergers and acquisitions,” he tells AsianInvestor. “A renewed interest from private equity funds, attractive stock valuations, cheap financing costs, and cash balances held by acquiree companies.
"Private equity will no doubt remain active, especially with the emergence of improved credit markets, and is definitely coming back to the [M&A] market.”
For the nine months to the beginning of October this year, there were 66 M&A deals in Asia for a total size of $75 billion (more than recorded in Europe). Two thirds of those have come since June.
Most of the deals are domestic and emanate from Australia (mining and services) and Japan (electronics). Further activity looks likely from Philippine firm San Miguel, which wants to buy a gold and copper producer named IRN. There is also Kohlberg Kravis Roberts, which has a non-binding bid of A$1.7 billion on Australian asset manager Perpetual.
Lafite provides an event-driven Asian research service for hedge funds and prop desks at LCM. His specialist markets are Australia, Japan, Singapore and Hong Kong.
Lafite started at LCM in July this year offering suggestions about risk arbitrage on announced deals larger than $200 million, seeking to beat the media in providing his analysis.
He has now expanded into providing commentary on rumours of unannounced deals. What he then does is give a recommendation of the position that an event-driven portfolio manager should take.
Before LCM he worked for CIC in France in the prop-trading M&A team covering the US market. He subsequently moved to Singapore in 2006, where he worked on an Asian merger arbitrage prop desk. Asked to return to France at the end of 2008 because of the financial crisis, he chose to stay in Asia and joined LCM, a brokerage with whom he used to trade.
At LCM he has also developed a virtual portfolio, in which he ‘books’ his trade ideas. This allows clients to see how they would have done if they had followed his recommendations.
LCM is an independent agency broker dealer that has operated in London and New York for some time. It started its cash equity business in Hong Kong in March 2007 and now trades all Asian markets.