Widening M&A spreads open doors for hedge funds

By Anshuman Daga

LONDON (Reuters) - Widening deal spreads in booming corporate mergers and acquisitions are creating more opportunities for hedge funds, but also increasing risks, the head of multi-manager portfolios at Credit Suisse said on Tuesday.

Speaking at the Reuters Hedge Fund and Private Equity Summit, Nils Tuchschmid said: "We are seeing the widening of spreads. Before it was much, much more tight."

The spread on a deal is the difference between the target's share price and the price of the potential bid. The wider the gap, the less chance the bid will be successful, which in turn creates more opportunities for hedge funds to trade.

"As the spread widens, you can expect to get more, but also the risk you take is higher. That's the reason why you need to be more selective," Tuchschmid said.

European companies kicked off 2006 with more M&A deals than in any other first quarter on record, as companies raced for growth, spurred by robust equity markets and the availability of low-cost finance.

Mega deals in sectors such as utilities pushed M&A volumes to $394 billion in the quarter to March 24, surpassing the $345 billion in the first quarter of 2000, at the height of the Internet and telecoms boom, according to data provider Dealogic.

"There is lot of liquidity. We are seeing more and more mergers and acquisitions, so there is supply coming from the corporate side," said Tuchschmid.

In among the flurry of deals in the UK have been some high-profile failures, which have subsequently hit bid premiums.  Continued...