Greedy Hedge Funds Push Buyout Bidders to the Edge
Investors are testing the boundaries of what private equity firms are willing to pay in U.K. M&A deals. The risk of a messy clash are growing.
Is this party coming to an end?
Photographer: Ki Price/Getty Images EuropeWhen hedge funds are pushing private equity firms around, it’s hard to see things ending well. Merger arbitrageurs in the U.K. have been betting that deal-hungry buyout firms have infinite funds to pay sky-high prices for assets. But the arbs’ aggressiveness in driving up the shares of buyout targets may be a sign of something more troubling than optimism.
The M&A market is frothy and private equity firms are keen to put their vast funds to work. Many takeover targets are attracting several suitors. Hence, share prices have often traded above the level of the last offer, anticipating something higher will come along. That's happened even when the company has accepted what's on the table. The greedy gamble hasn’t always paid off.