UBS launches new M&A index as bank sees ‘decisive turnaround’ in activity
Being included in an index is usually good for IR teams. Joining, for example, the FTSE 100, brings with it a big uptick in the number of funds that can invest in your stock. Indeed, many of these funds are passive, meaning no phone calls, presentations or management meetings are necessary to secure their investment. You just sit back, relax and watch the money roll in.
UBS’ new M&A index is different, however, and being included in it will probably be less welcome. The index has been set up to give institutional investors and high-net-worth individuals a way to invest across UBS’ M&A watch list. Being highlighted as a target is never good for stability, either for the stock price or the broader company. Worse still, if your company is approached and ends up being taken over, you’ll probably lose your job.
The index, launched in January, is made up of the 56 (and counting) stocks on UBS’ watch list. The investment bank says that, since the watch list launched in December 2009, the firms on it have collectively outperformed the FTSE EuroFirst 300 by 20 percent. Key to UBS’ philosophy here is that, while there is plenty of bid speculation about, few companies are having a bid premium priced into their market value. According to the bank, only ‘19 out of 56 stocks within the UBS M&A watch list have bid premiums, most of which are small.’
Adding to UBS’ bullish mood is the fact that European M&A was up 49 percent in the fourth quarter of last year, plus the bank believes there has been a ‘decisive turnaround’ in the region’s deal activity.
The index is based on research from Daniel Stillit, head of the special situations research team at UBS, which covers all things deal-related, from M&As and leveraged buyouts to spin-offs and shareholder activism. His picks for the index include a fair number of UK stocks, representing Stillit’s view that the UK is both the ‘most accessible market in Europe’ and also likely to receive a disproportionate amount of the ‘into Europe’ deal flow that UBS expects from the US and Asia.
The spread of sectors in the index, by comparison, is fairly even, demonstrating the different potential drivers of M&A at this time, according to Stillit. Engineering, software and pharmaceuticals have slightly higher representation than other sectors, but not by much.
