Carmignac Portfolio Merger Arbitrage

January was a month of contrasts for Merger arb performance, with an excellent start to the month driven by a general tightening of merger arb spreads. This movement reflects the optimism of all players with the arrival of the Trump administration, which should be more favorable to M&A activity. This sentiment is also present in Europe, where Marcus Bokkerink, Chairman of the UK's Competition and Markets Authority (CMA), has been dismissed by the British government, which would like to see a new chairman more favorable to growth and business.

The end of January saw the US Department of Justice (DOJ) file a lawsuit to block Hewlett Packard Enterprise's $14 billion acquisition of Juniper Networks. The DOJ argued that the merger would reduce competition in the enterprise wireless equipment market, consolidating the sector from three major players (HPE, Juniper and Cisco Systems) to just two. This decision took the market by surprise, and led to a return of uncertainty for more complex deals such as Surmodics.

The HFRX Merger Arbitrage index gained +1.35% over the month.

Measured by the number of transactions, M&A activity was down slightly, with 18 deals announced worldwide. This slight downturn was due in particular to announcements in the United States, which slowed down pending the Trump administration's first measures.

Three deals worth over $10 billion were announced: Johnson & Johnson announced the acquisition of Intra-Cellular Therapies, Inc. for a total of around $14.6 billion to strengthen its position in neuroscience, the Italian banking sector continues to be active with the announcement of the hostile takeover of Mediobanca by Banca Monte Dei Paschi di Siena for 13 billion euros, and finally the launch of a hostile bid by QXO for specialist building products distributor Beacon Roofing Supply ($11 billion).

The fund posted a positive performance over the month.

Main positive contributors to performance were: DS Smith, Shinko, Banco Sabadell and Hess.

Main negative contributors to performance were: Juniper and Surmodics.

The fund's investment rate is 44%, 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.