Inside This Year’s M&A Boom and the IQ Merger Arbitrage ETF (MNA)

by on November 25, 2014 | ETFs Mentioned:

Since the start of 2014, Wall Street has witnessed one of the most active mergers and acquisition booms in some time. With only a little more than a month to go, so far this year’s global merger tally already tops $3 trillion, with U.S. M&A activity accounting for $1.5 trillion. According to Dealogic, the current dollar volume of announced deals in the world is higher than in any full year since 2007 [see also ETF Issuer Solutions Welcomes Industry Newcomers].

In light of this M&A boom, we’ll take a look at the recent mega-deals, as well highlight how one particular fund has tried to capitalize on this boom. 

The Highest M&A Activity Since 2007

Global M&A volume totals $3.23 trillion year-to-date, which is 27% higher than 2013′s volume and the highest YTD volume since 2007, which logged in a volume of $4.08 trillion. Below is a graph of yearly M&A volumes from Dealogic:

Global M&A Volume

While the majority of the deal volume has targeted the healthcare sector, there have also been some other mega-deals in other industries. Some of the largest deals of 2014 include:

  • Comcast (CMCSA) Acquires Time Warner Cable (TWC) for $69.8 billion
  • Actavis (ACT) Acquires Allergan (AGN) for $66 billion
  • AT&T (T)  Acquires DirectTV (DTV) for $67.1 billion
  • Medtronic (MDT) Acquires Covidien (COV) for $46.8 billion
  • Halliburton (HAL) Acquires Baker Hughes (BHI) for $34.6 billion
  • Actavis (ACT) Acquires Forest Laboratories (FRX) for $25.3 billion 
  • Facebook (FB) Acquires WhatsApp for $19.4 billion

It should be noted that not all of these deals have been approved by regulatory authorities yet. 

A Look at the IQ Merger Arbitrage ETF 

At its core, Merger Arbitrage ETFs aim to profit from the spread that occurs when an acquisition is announced and the final purchase price is set. The IndexIQ Merger Arbitrage ETF (MNA) is one of only a handful of ETFs that utilizes this popular strategy [see also A Closer Look at Merger Arbitrage ETPs].  

MNA tracks the IQ Merger Arbitrage Index, which seeks to achieve capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer. This differentiated approach is based on a passive strategy of owning certain announced takeover targets with the goal of generating returns that are representative of global merger arbitrage activity. The Index also includes short exposure to global equities as a partial equity market hedge.

Below, take a look at MNA’s performance year-to-date, relative to the S&P 500 ETF (SPY):


During the first few months of the year, where equities entered a steep correction, MNA managed to outperform the broader market. Once bullish momentum returned, SPY charged higher, while MNA continued its steady upward trend. MNA has also managed to outperform its competitors in the merger arbitrage ETF category. 

The Bottom Line

M&A activity has certainly picked up its pace this year, which for the most part is a positive sign for the economy. The IndexIQ Merger Arbitrage ETF (MNA) has also benefited from this uptick in mega-deals, logging in steady returns throughout the year. 

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Disclosure: No positions at time of writing.