Back to top

Image: Bigstock

"Merger Monday" to Benefit These ETFs

Read MoreHide Full Article

"Merger Monday" was back on May 4, with semiconductor companies taking charge. Acquisitions announced on Monday will help strengthen business integrated through previous buyouts in the same line. 

Intel (INTC - Free Report) is buying mobility app Moovit for $900 million, three years after it acquired Mobileye for $15.3 billion. With the addition of Moovit, Intel hopes to build out Mobileye as a “complete mobility provider” with a forecast market of $160 billion by 2030 (read: Intel Sinks on Weak Guidance: ETFs in Focus).

Moovit provides traffic data to third parties — including Intel itself, Uber and 7,500 transit authorities — and has a popular app with 800 million users globally, per techcrunch.com. The Moovit acquisition would strengthen Mobileye’s “mobility as a service” (MaaS) offering.

Mobileye’s driver assistance technology is in place for some 60 million vehicles as of now. Opportunities lie in still-new autonomous services like “robotaxis.” Intel expects robotaxis alone to be a $160 billion market by 2030.

Also on Monday, Nvidia Corp. (NVDA - Free Report) said it was acquiring data center networking specialist Cumulus Networks for an undisclosed amount. Nvidia recently closed the $6.9-billion acquisition of Mellanox Technologies Ltd., after it received antitrust approval from Chinese regulators in mid-April.

Having both Cumulus and Mellanox in its kitty, Nvidia should be equipped with all the tools needed to help enterprises and cloud providers build out their high-performance computing and AI workloads in their data centers, per techcrunch (read: ETFs to Gain on Cloud Computing Growth Amid Coronavirus Crisis).

Semiconductors Are High on M&A

The space has been hot with acquisitions lately withmore than 30 agreements in 2019, which had a combined value of $31.7 billion, up 22% year over year, according to data compiled by IC Insights, as quoted on evertiq.com. The 2019 value of semiconductor acquisition agreements was the third-highest annual total ever.

ETF Impact

Both companies have considerable exposure to VanEck Vectors Semiconductor ETF (SMH - Free Report) and iShares PHLX Semiconductor ETF (SOXX - Free Report) . So, semiconductor ETFs are likely to benefit from the deals. SMH and SOXX were about 1.1% and 0.8% respectively on May 4.

The news should leave a positive impact on IQ Merger Arbitrage ETF (MNA - Free Report) and ProShares Merger ETF (MRGR - Free Report) . MNA’s underlying index — the IQ Merger Arbitrage Index — seeks to identify opportunities in companies whose equity securities trade in developed markets, including the United States, and are involved in announced mergers, acquisitions and other buyout-related transactions.

Meanwhile, the underlying S&P Merger Arbitrage Index of MRGR provides exposure to a global merger arbitrage strategy, which seeks to capture the spread between the price at which the target company’s stock trades following a proposed acquisition and the value that the acquiring company has agreed to pay for the stock of the target. The index takes long positions in target securities.

However, over the long term, impact on the M&A ETFs should be subdued as coronavirus has wreaked havoc on the companies’ cash position and thwarted the momentum for big deals for the time being. Global merger activity was down 33% year over year till mid-April and was the lowest year to date amount for dealmaking since 2013, the data from Refinitiv showed.

 The number of deals also dropped 20% year on year. Amid this circumstance, only the cash-rich ones are likely to go for M&A deals that are substantially important for their operations and portfolio.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>