Large-cap merger and acquisition (M&A) activity presents little value to the acquirer at the moment, according to Airlie Funds Management, despite the booming M&A environment.
Speaking on Money Management’s Asset Allocation Webinar, portfolio manager Matt Williams said: “From a portfolio perspective, obviously we'd rather our companies be sellers into [these] quite extraordinary times because from a philosophical point of view, we think big cap, large M&A doesn't really add a lot of value to the acquirer, so we’d rather be on the selling side”.
He said the most interesting M&A events from Airlie Funds’ perspective were the recent bids for Sydney Airport, Spark Infrastructure, and Telstra mobile towers because these are long duration assets.
“It sort of shows that the acquirers or potential acquirers – the big superannuation funds and the global pension funds – are saying if inflation is coming then they’re not worried about it,” he said.
Airlie predicted the M&A trend would continue so long as low interest rates and positive spread remained in the market, according to Williams.
Similarly, Williams said investors should be wary of being overexposed to growth companies, which were long duration assets, as low interest rates had driven them to “never before seen kinds of valuations”.
“I'm not telling you to go out and sell all your quality growth companies … but to us, it is becoming an asymmetric bet driven by lower and lower interest rates. If indeed the inflation pessimists are right, then if you're very much over-weighted to this area of the market, then it could be a painful experience,” Williams said.
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