M&A activity has continued strong into the third quarter. With no downturn in sight, the question becomes how investors can profit from this robust M&A space. Locating credible information within the mergers and acquisitions space is no easy task. With the right strategy, mergers and acquisitions can be a remunerative space for investors and hedge fund managers. Tracking rumors surrounding companies and being aware of all chatter surrounding a company can help investors locate opportunistic trades, modify positions, and in the case of any short positions, help investors fully understand their risk.
What is driving M&A growth?
Factors contributing to M&A growth remain largely the same from previous years: synchronized global growth, favorable equity market valuations, low cost of debt, investor support, and CEO confidence<. However, there is one new driver that may be responsible for this unprecedented growth; tax reform.
The reduction of the corporate tax rate from 35% to a flat 21% meant the growth of after-tax profitability for corporations. Strategic buyers are more willing to invest in US operations and acquisitions and the lower tax rates have piqued interest in US companies.
The amount of information and ‘chatter’ online around M&A activity is vast. The sources of this digital data are growing exponentially, and keeping pace with the fast changing environment of M&A seems to be an insurmountable challenge. Investors have to sift through mountains of information in a timely manner to find credible rumors that move stock prices. This requires both substantial manpower and cognitive bandwidth to generate alpha in the digital age.
Reportedly, more hedge funds are using artificial intelligence and machine learning to assist with these qualitative tasks to better help idea generation, portfolio curation and allow more time for investors to make well-informed financial decisions. We believe this! Our customers are already using one of our platforms, Rumor Hound, which is specifically tuned for M&A and continuously reads the vast repositories of online data, and uses AI to identify market-moving rumors in real time.
First rumor detected: 08-03-2018 (Stock Price $46.19)
Deal announced: 08-06-2018 (Stock Price $51.06 +10.5%)
Forest City Realty Trust ($FCE.A)
First rumor detected: 01-31-2018 (Stock Price $24.05)
Deal announced: 07-31-2018 (Stock Price $25.00 +3.9%)
LifePoint Health, Inc ($LPNT)
First rumor detected: 07-20-2018 (Stock Price $47.85)
Deal announced: 07-23-2018 (Stock Price $64.90 +35.6%)
Accrete.AI’s Rumor Hound platform was specifically tuned to listen for market moving M&A chatter. On average, M&A rumors that are identified in endless amounts of digital noise move stocks an average of 4.7% in excess of sector specific benchmarks, largely due to outsized gains on true positives. To learn more about how Rumor Hound for M&A can help you generate alpha, please visit the Rumor Hound product details page at: https://www.accrete.ai/rumorhound/