Deal flow has been massive in the first half of 2015 from healthcare to technology to insurance. And just because interest rates are ticking higher, don’t think the merger activity will slow down, said Chris Pultz, portfolio manager for the Kellner Merger Fund. The merger arbitrage business has a positive correlation to interest rates so as interest rates rise we will see an increase in our rates of return,’ said Pultz. ‘We have historically not seen any sort of dip in merger activity as interest rates rise.’ Pultz oversees the Kellner Merger fund which has returned 3.3% so far in 2015. The fund does not speculate on potential deals, preferring to wait until a definitive agreement is announced before jumping in. ‘We go long the target and short the acquirer and we lock in a spread. And what that does is give us a rate of return that is uncorrelated to the market. So regardless if the market goes up 20% or down 20%, as long as this deal closes we will lock in that spread,’ said Pultz who added that he prefers larger deals because they offer more liquidity and the potential for larger spreads. One particular deal Pultz –and the rest of the merger arbitrage community is closely watching is the tangled dance between generic drugmakers Mylan, Perrigo and Teva Pharmaceuticals. ‘I think Mylan is in a good position here,’ said Pultz. ‘Perrigo shareholders will probably benefit either from a Mylan deal, and I’m sure Perrigo is out there shopping themselves to other deals as well. And they are probably looking for a higher price from Mylan which I think we probably will get.’ A lot of dealmaking is currently taking place in the healthcare and insurance sectors as a result of the Affordable Care Act.
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