The Context Of Economic Growth Favors Mergers By Mark1199. The current context of economic growth and low interest rates may favor, in the opinion of Mutuactivos, corporate consolidation and the launch of takeover bids in the coming months. “So far this year we have received three in Spain (Euskaltel, Naturgy and Solarpack), and we have reason to think that this process should continue”, indicates Emilio Ortiz, Mutuactivos investment director, in his last quarterly letter.

They believe that, with the cost of financing at historical lows, for an industrial group that controls listed companies, there is no more profitable and safe operation than to buy back its minorities, especially if they are listed at depressed valuations (and the company is not excessively leveraged).

“For a private equity fund or a SPAC, which has just raised billions of capital and needs to invest it, the opportunity is similar. In that case it is called LBO ( Leveraged Buy Out ), but the play is similar,” he explains Ortiz.

The investment director uses the case of Naturgy as an example, on which the Australian fund IFM launched an offer for 22.69% of the company at a price of 23 euros per share at the end of January. The Context Of Economic Growth Favors Mergers By Mark1199.

Only by way of dividends, IFM would enter, it indicates, about 300 million euros a year. “Assuming that IFM, which has large financial resources, finances this operation at 50% and that the average financing cost is Euribor + 300 basis points, the financial cost of this debt, after taxes, will be around 56 million per year” , details.

Hence, according to their calculations, IFM’s net annual profit from financial expenses in this operation should be around 244 million euros: ” In a net investment of 2,500 million, this represents a profitability (leveraged) of 9.76% on the capital invested . With the Spanish 10-year bond at 0.40%, it does not seem like a bad operation, “concludes Ortiz.

Market positioning
In Mutuactivos they continue to see few opportunities in the world of fixed income , especially in public debt, although this does not imply, they say, that you cannot make money with this asset, where now it is essential to resort to active management. They see value, in relative terms, in corporate hybrid debt.

“It is a very niche market that, due to technical factors, still offers a good balance between profitability and risk. Hence, we are raising a new fund to take advantage of this opportunity,” says Ortiz. It should be remembered that, at the beginning of the month, the manager announced the launch of a new vehicle, Mutuafondo Bonos Subordinados IV , with which they aspire to achieve an annual return of 2.75%.

As for equities, which are favored by the current context, they continue with their commitment to the energy transition and a return to normality .The Context Of Economic Growth Favors Mergers By Mark1199.

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