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Event-focused investors bet on further jump in corporate deals and restructurings in 2021

Many hedge funds that bet on corporate events such as takeovers were left reeling last March after an “M&A arb-ageddon”, when a wave of deals fell apart or threatened to.

That nightmare month is a distant memory for so-called event-driven funds that are licking their lips at the opportunities they see to bet on corporate deals and restructurings this year.

Such funds lost 12.4 per cent in March 2020, according to data group HFR, their biggest-ever monthly loss, as the coronavirus-driven market sell-off hit many of the deals they were wagering would go through smoothly. As share prices fell, funds with tight stop-losses were forced to cut their positions, leading to further losses.

But the intervening year has been much kinder to event-driven funds. Managers who stuck with their bets on deals made back losses as markets rebounded. The rally in cheap, beaten-down stocks since November’s positive news on the coronavirus vaccine and US stimulus packages is lifting many of the sectors they tend to invest in. And some have also profited from the boom in Spacs, blank cheque companies seeking deals into which many funds have poured money.

Managers are looking at a healthy pipeline of M&A deals and a possible wave of restructurings of companies in sectors such as travel and leisure, which are desperate for lockdowns to be lifted before their cash runs out. Tiny hedge fund Bluebell Capital’s big role in the recent ousting of Danone’s chief executive could also point to attractive opportunities for activist funds.

“Event funds like events. The more activity there is the better, and the greater likelihood more things will be mispriced,” said Luke Lynch, founder of London-based Aslan House, an event-driven hedge fund.

Paul Singer’s Elliott Management told investors this year that event arbitrage and activist bets had contributed to its gains in 2020 and offered further opportunities to make money this year. “There looks to be no diminution of the number, and quality, of potential opportunities in these areas,” the firm wrote in a letter seen by the Financial Times.

Event-driven funds, which account for just over a quarter of the $3.6tn hedge fund industry, gained 28 per cent from the start of April to the end of last year, and are already up 6.5 per cent in the first two months of this year, according to HFR.

Dealmaking ground to a halt early last year, as the Covid-19 crisis shifted executives’ focus away from M&A and towards saving their own businesses. But the rebound has been dramatic — $2.3tn of last year’s $3.6tn of deals were struck in the second half, according to Refinitiv, helped by rising equity markets and cash hoarded by companies during the pandemic.

The trade for event-driven funds is typically fairly simple. Managers buy shares in the target company and bet on a falling share of the acquirer, wagering that they will profit as the spread on the deal closes.

What can make such trades more interesting is what managers call “hair” on a deal — complexity such as the structure of the deal or tough regulatory hurdles that take time to analyse.

Providing a thick carpet of that hair have been worries over who new US President Joe Biden will appoint in important antitrust roles and fears that chilly US-China relations will lead Beijing to fail to approve another deal, as it did with Qualcomm’s merger with NXP in 2018.

Managers often welcome such uncertainty, though, because they believe they can gain an edge, for instance by doing in-depth research on deals or analysing the candidates likely to be appointed by Biden’s administration. A perception that deals will be too hard to analyse can also deter some investors, creating more opportunities for the hedge funds.

“It’s the perception of hair, rather than hair itself” that is keeping some investors away, said Jamie Sherman, portfolio manager at event-driven fund Kite Lake Capital Management. “The regulatory environment on the face of it looks the most threatening it’s been for a while, and from the outside transactions look complicated.”

One sour note for event-driven funds has been the sell-off in Spacs in recent weeks. The eventual downside from investing in these companies may be limited because, under the way Spacs are structured, investors can choose to take their money back eventually. However, Spacs could still sink to sizeable discounts during a sell-off in the meantime. Managers should make sure a “Spac-mageddon” does not ruin what could be a lucrative year.

Brazilian Home-Selling Startup Loft Eyes $2.8 Billion Valuation

The company has raised $425 million from a wide group of global investors in a new round; it plans to follow that quickly with an additional financing at a higher valuation

Brazilian real-estate startup Loft Holdings Ltd. is riding a booming local home-buying market, helping it attract new capital.

The São Paulo-based company raised $425 million at a valuation of $2.2 billion in a Series D round just three years after its launch.

D1 Capital Partners, a hedge fund that has been building a large private portfolio, led the deal, with participation from an array of global investors.

Loft is already in the process of raising about $100 million more in an add-on to the deal that would boost its valuation to roughly $2.8 billion post-money, according to people familiar with the situation.

The investment in Loft comes at a time when venture investors are paying more attention to startups in Latin America. Overall, Latin American startups completed 488 venture rounds last year, up from 433 in 2019, according to preliminary data from Emerging Markets Private Equity Association, a New York-based industry association.

“VC-backed or tech companies, in general, are leapfrogging and growing faster here than even in the U.S.,” said Mate Pencz, Loft’s founder and co-chief executive.

Part of the reason, he said, is that incumbent industry players in the region tend to be less digitally savvy and charge higher fees, making startup offerings more attractive to consumers. There are also fewer startup competitors. Mr. Pencz said Loft is the dominant digital “iBuyer,” a type of home flipper, in Brazil.

At the same time, there are fewer regulatory roadblocks to deploying technology in a user-friendly way, he said. Loft, for example, has been completing the majority of its mortgage closings and home sales fully digitally.

Several investors participating in the Series D financing are making their first foray into Latin America or are returning after a long absence, Mr. Pencz said

New investors in the round include Advent International, Altimeter Capital Management, Canada Pension Plan Investment Board, DST Global, Singapore’s sovereign wealth fund GIC, Silver Lake Waterman, Soros Fund Management, Tarsadia Capital and Tiger Global Management. Returning investors include Andreessen Horowitz, Caffeinated Capital, Fifth Wall, Monashees, QED Investors and Vulcan Capital. Loft’s Series C round took place more than a year ago, and totaled $175 million.

Mr. Pencz co-founded Loft with co-CEO Florian Hagenbuch. The duo previously started Brazil-based Printi, an online printing service.

Mr. Pencz said Loft exceeded its financial projections in 2020, which spurred the Series D round. He also wanted to involve investors that participate in both private and public markets to help the company when it decides to go public.

The company’s business has been booming in Brazil despite the country’s tough economic situation.

“Mortgage rates are at all-time lows, which is bringing a lot more affordability into the real-estate market,” Mr. Pencz said.

New real-estate loans in Brazil hit a five-year high recently as interest rates are at record lows, according to a research report from financial services company Banco Santander. At the same time home prices are up, the report showed.

Loft also has an online real-estate marketplace, where people list their homes and Loft facilitates the sale, making a brokerage commission. In addition, the company makes money by originating mortgages and selling other related services.

The company now has about 15,000 homes on its platform, mostly apartments in São Paulo and Rio de Janeiro, up from roughly 1,000 in early 2020. Mr. Pencz declined to comment on the company’s financial metrics.

While Brazil has suffered economically over the past year and has a long history of currency depreciation and political instability, Mr. Pencz said that his business shows how tech startups in the country can continue growing even through volatile times.

“We started the business in the middle of a recession. We never left that recession,” but that hasn’t stopped the company’s fast growth, he said.

Corrections & Amplifications

Silver Lake Waterman is a new investor in the Series D round. An earlier version of this article incorrectly said the name was Silver Lake Partners. Additionally, Tarsadia Capital is one of the investors in Loft. A previous version of this article referred to it as Tarsadia. (Corrected on March 26.)

The banking veteran is known for persistence and focus in an area some fear is a fad with newcomers chasing a quick buck

Celebrity influencers like Serena Williams, Ciara and Chamath Palihapitiya have jumped on the blank-check-company boom. One of the biggest stars in this white-hot corner of Wall Street is a 79-year-old financier who doesn’t tweet or court the Reddit daytrading crowd.

What Betsy Cohen does do is deals—lots of them.

This month, Ms. Cohen brought her ninth blank-check company to market, making her one of the biggest players in special-purpose acquisition companies, or SPACs. Her latest undertaking involves a merger with Robinhood Markets Inc. competitor eToro that values the investment platform at more than $10 billion.

In total, Ms. Cohen’s SPACs have raised more than $3 billion and are taking public such companies as payment platform Payoneer Inc. and financial advisory firm Perella Weinberg Partners. Since the pandemic, Ms. Cohen, an art and architecture aficionado, does her deals from her home near Sarasota, Fla.

It is not just the number of deals that sets Ms. Cohen apart in a space now swarming with big-name financiers, athletes and pop stars.

While many of the celebrities touting SPACs are women, few run one. Of roughly 512 vehicles active in the U.S., only about 30, including Ms. Cohen’s, are led by a woman, said Benjamin Kwasnick, founder of data provider SPAC Research.

Ms. Cohen is known for persistence and focus in an area of finance that some fear is a market fad in which newcomers are chasing whatever deal looks likely to make a quick buck.

She also sniffed out the potential for SPACs well before much of Wall Street, starting one in 2015.

“My greatest pleasure is creating something out of nothing,” she said in an interview. “I’m just pursuing what I’ve always pursued, which is doing what’s unpopular until it becomes popular.”

SPACs today are clearly popular. So far this year they have raised more than $90 billion and account for about 72% of all initial public offerings, according to Dealogic.

That compares with just 22% two years ago and is a far cry from when Ms. Cohen started. In 2015, SPACs were an oddity with a checkered past; there were only about 20 that raised just shy of $4 billion, according to Dealogic.

That didn’t deter Ms. Cohen, who had just wrapped up a 50-year career spanning finance, law and real estate and in which she had started more than a dozen companies. After retiring for just eight days, she started a SPAC called FinTech Acquisition Corp. with her son, Daniel Cohen.

At first, the Cohens were looking for a way to marry their knowledge of the fintech sector with their banking experience. Ms. Cohen was the chief executive and founder in 1999 of The Bancorp Inc., a virtual bank for small and midsize businesses.

“She was a fintech pioneer all the way back in her Bancorp days,” said Kelly Galanis, managing director at Goldman Sachs, which has worked on multiple SPAC deals with Ms. Cohen.

Mr. Cohen has served as chairman of Bancorp since its inception and is a financier in his own right.

By 2015, the two thought many fintech companies, particularly ones that specialized in online payment systems, were ripe to go public via a SPAC. The companies were generally at later stages in their growth cycles. Going to market by merging with a SPAC would be faster, cheaper and potentially more lucrative than trying an initial public offering, and SPAC deals could enrich the Cohens.

This has to do with the way SPACs work. A sponsor raises money from investors, supporting a publicly listed shell company that has the sole purpose of merging with a private firm to take it public. After a SPAC does a deal, the private company gets its place in the stock market and the SPAC’s creators reap big gains.

Ms. Cohen said she was drawn to the challenge of starting a SPAC because of that mix of ambiguity and risk: Start with a pile of cash, then aim to find a private company to take public.

Mr. Cohen said the potential financial upside was also an incentive: SPAC sponsors, on average, can earn several times their original investment. Indeed, Ms. Cohen said her deals have made money, although she hasn’t specified how much.

About a year after launching, Ms. Cohen did her first SPAC deal. Her company paid $10 a share to merge with CardConnect Corp., a payment-processing company. The company was acquired about a year later by First Data Corp. for $15 a share.

Buoyed by this success, Ms. Cohen went after more deals and targeted companies that had passed their startup phase. Her rationale: If those companies, generally founded between 2005 and 2012, were still around, they had likely proven their business and were a good pick to go public.

Choosing a target is more art than science for Ms. Cohen. Her process includes seeing where a product or company fits in the financial-technology ecosystem, assessing the quality of the management team and understanding their vision for growing the company. Some targets are also the fruit of relationships Ms. Cohen developed with fintech founders during her days running the virtual bank that had about 1,600 nonbank companies on its platform.

Once a target signs on, Ms. Cohen works with her son to develop growth plans, refine the business strategy and manage other investors in the deal.

Deals unfolded at a brisk pace. In 2017, Ms. Cohen launched a SPAC that completed a merger the following year with the parent company of Intermex Wire Transfer LLC. She launched another SPAC in 2019, which merged with payments provider Paya a year later. She started three other SPACs in 2020 and launched three others in 2021.

One hallmark of Ms. Cohen’s pursuits was persistence, a quality that became especially important as the SPAC sector boomed and competition intensified. Scott Galit, chief executive of payment platform Payoneer, recalls how Ms. Cohen called him regularly for about five years to encourage him to take his company public via one of her SPACs. In December 2020, he finally agreed.

“She’s pleasantly persistent,” he said.

Ms. Cohen is also focused. Although all kinds of companies are now going public via SPAC deals, Ms. Cohen said she is largely sticking with what she knows, the fintech space, and doesn’t see that changing soon.

The risk is that SPACs become victims of their own success.

Critics of the current craze say SPACs make it too easy for companies to gain access to everyday investors and quickly become worth billions of dollars. Meanwhile, with so much new money chasing deals, analysts worry prices paid for target companies could soar regardless of the prospects for the business being bought. That could lead to stiff losses down the road.

Ms. Cohen said that as long as deals involve good companies that are growing, SPACs are viable investments. She likened them to IPOs. “There were good periods and bad periods and the same is likely to be true of SPACs,” she said.

As for her own future, Ms. Cohen thinks the fintech sector is still full of opportunities. She also hopes to bring more women into the space. To date, five of Ms. Cohen’s SPACs have had all-female boards.

Ms. Cohen, a grandmother of nine, has no current plans of retiring, again.

“You’re really only as good as your last deal,” she said.

‘Black Widow’ will be first premium streaming offering to compete against reopened movie-theater market

Disney DIS -0.53% has set up what may be the ultimate test of streaming at home versus going to the theater.

Earlier this week, the entertainment titan announced a surprise shift in its plans for “Black Widow.” The much-anticipated next chapter in its Marvel Cinematic Universe was set to release in theaters on May 7—one year after its originally planned date that was stymied by the global pandemic. But Disney pushed the debut back by two months to July 9, and threw in a plot twist: “Black Widow” will also become available on its Disney+ streaming service the same day under its Premiere Access plan that charges subscribers an additional $30 to watch the movie.

Disney has yet to publicly explain its reasoning, but the step was likely driven in part by concern about the state of the movie-theater market come May. A little over half the North American theater base had reopened by mid-March, according to Comscore data, and that number will grow notably higher as Cineworld Group CNWGY 26.98% begins reopening its Regal chain on April 2. But even reopened theaters still mostly operate at sharply reduced capacities. Analyst Michael Pachter of Wedbush thinks capacity restrictions are unlikely to fully lift before the fourth quarter of this year.

The movie slate will be crowded by then. Comscore counts 24 major movies slated for “wide” release in the 14-week quarter, including some blockbusters delayed from last year such as the James Bond vehicle “No Time to Die.” Hence, Disney’s new plan for “Black Widow” looks like a way to maximize the return for a $200 million movie that won’t be able to fill as many seats as its superhero movies typically do. It might also help boost Disney+ subscribers—a major priority for the company and a data point investors have watched closely.

Still, the move complicates an already complicated recovery story for the movie-exhibition industry. “Black Widow” was expected to serve as the main launching point for the summer movie season. AMC Entertainment, Cinemark Holdings and Cineworld have seen their share prices slide an average of 11% since Disney’s “Black Widow” shift.

The end result might not be as bad as feared, though. “Wonder Woman 1984” was available free of additional charge on HBO Max or for the price of a movie ticket on the same day. Disney’s $30 surcharge for “Black Widow” is much closer in price to a date night at the movies and will cannibalize fewer theater visits solely on the basis of price.

Theatrical exhibition also still has value in a streaming world. Lack of theatrical support from Cinemark had a notable impact on Disney’s “Raya and the Last Dragon” earlier this month. That movie was also available on Disney+ for $30 on the day of its release, but it took in only $8.6 million at the North American box office on its opening weekend. Theater chains have yet to announce whether they will show “Black Widow” under the new plan as they are presumably negotiating with Disney over possibly lower film rental rates.

Other media giants with their own streaming platforms to fill are still releasing films in a more theater-friendly manner. Meghan Durkle of Credit Suisse notes that new deals involving Universal, Warner Bros. and Paramount all point to an exclusive U.S. theatrical window of 30-45 days for a post-Covid world. That is notably shorter than the 90-days the industry once operated by, but most big movies rake in the majority of their box-office take in the first month anyway. And Disney itself has also made clear that it intends to keep making theatrical movies. “Black Widow” will provide a good lesson for both sides in what movie watchers are ultimately willing to pay up for.

Treatment advances helped many more survive the disease, but may have seeded fresh flare-ups

JOHANNESBURG—Two ongoing Ebola outbreaks in Africa appear to have been sparked by survivors of earlier epidemics, according to research that is drawing attention to how long the virus can lurk in parts of the human body, only to reappear months, or even years, after the initial illness.

The findings are based on tests of virus samples taken last month from flare-ups of the disease at the sites of the two largest Ebola epidemics in history: Guinea and the eastern Democratic Republic of Congo. Those epidemics—including the one that killed more than 11,000 people across West Africa between 2013 and 2016—hastened the development of Ebola vaccines and therapies that have since offered hope of turning around the fight against one of the world’s deadliest viruses.

Now, researchers are trying to understand whether those lifesaving scientific advances have planted the seeds of fresh transmissions of the hemorrhagic fever.

Doctors have known for some time that Ebola can lie dormant in areas shielded from the body’s immune response—such as the eyes, brain and a man’s testes—for months after a person has cleared the initial infection. In 2016, scientists documented how a Guinean man, who recovered from Ebola in November 2014, had passed on the virus to a sexual partner some 15 months later.

But many were puzzled when research published this month found that a spate of new Ebola cases detected in February in the same part of Guinea were caused by a version of the virus that was remarkably similar to the one at the center of the 2013-2016 epidemic. The most likely explanation for the limited number of mutations found in the virus, the researchers concluded, was that this new outbreak was again triggered by a survivor of that epidemic—rather than a fresh instance of Ebola jumping from animals to humans.

“When we received the results we were surprised,” said Abdoulaye Touré, director general of Guinea’s National Institute for Public Health and one of the scientists behind the research. “We didn’t know that one could have a suspected transmission from a survivor five years or more later.”

Health authorities in Guinea haven’t been able to connect the first case in the latest outbreak—a nurse who passed the virus on to several mourners who attended her funeral—to a survivor of the earlier epidemic. “We are still investigating,” said Dr. Touré.

That link was easier to establish earlier in February, when genomic sequencing showed that a woman in eastern Congo had died of the same virus that infected her husband in September 2019, during an outbreak that lasted nearly two years and killed more than 2,000 people. What was startling, however, was that the husband’s semen had repeatedly tested negative for traces of Ebola virus—most recently on Jan. 29.

Why the virus festers in some people long after they have tested negative, and under what circumstances it can become infectious again, is poorly understood 45 years after Ebola was first identified. That is partly because until the 2013-2016 epidemic there were few survivors to observe the long-term effects. The virus has historically killed as many as 90% of those infected.

“Earlier outbreaks were a lot smaller and with very few survivors,” said David Heymann, professor of infectious disease and epidemiology at The London School of Hygiene & Tropical Medicine who heads a World Health Organization advisory group that is examining the recent Ebola resurgence in Congo. “We are learning a lot more about them.”

More than 17,000 people survived the epidemic that swept from Guinea into Liberia and Sierra Leone. Many of them continue to suffer from debilitating headaches, fatigue and other body pains, although it is unclear whether these symptoms are due to injuries caused by the original illness or are related to lingering infections.

One theory that experts are examining is whether antibody therapies that have shown to reduce the mortality rate from Ebola to about one-third for those who receive them may somehow push the virus into hiding. Such therapies can’t eliminate the virus from places that are hard to reach for the immune system, said Eric Delaporte, a professor of infectious and tropical diseases at the University of Montpellier in France.

Those drugs—known as monoclonal antibody treatments and similar to the antibody cocktails used against Covid-19—were widely administered in the earlier outbreak in eastern Congo, including on the husband of the woman who died last month. Their use was much more limited, however, during the West Africa epidemic.

The most obvious response to a growing threat from survivors would be a broader rollout of Ebola vaccines, which so far have mostly been given to contacts and contacts of contacts of those infected, as well as healthcare workers deployed near outbreaks. But the current Congo outbreak is also adding more questions over how long immunity from those shots lasts, since the woman who died had been vaccinated in September 2019, three days after her husband tested positive.

Experts from the WHO and other agencies are now investigating whether her immunity had lapsed, whether the shot the woman received had somehow been spoiled or whether she was among the unlucky few for whom the vaccine didn’t trigger a sufficient immune response.

The good news is that the current outbreaks in Guinea, where nine out of 18 people infected have died, and Congo, where 12 cases and six deaths were recorded, appear close to being contained. The last Congolese patient tested positive for a second time on March 21, triggering a 42-day countdown to declare the outbreak over. Guinea hasn’t registered a new patient since March 4.

“Saving lives is a good thing,” said Prof. Heymann. “Now we need to innovate [new responses] if by saving these lives we have made some people long-term carriers of this virus.”

No one has ever driven a Stellantis, and it remains likely that no one ever will. The world’s fourth-largest car maker doesn’t seem eager to make a name for itself as yet another brand in its stable of 14. And some of these aren’t short on cachet or name recognition—look at Maserati, Jeep, or Alfa Romeo.

Carlos Tavares, CEO of the company born from the January merger of Italy’s Fiat-Chrysler and France’s Peugeot-PSA, cautions, however, that Stellantis isn’t a “dinosaur” forced into existence by the combination of two old car makers. He insisted during the company’s first analyst meeting at the beginning of the year that he wasn’t presiding over the result of a “crisis merger.”

Known for his unsentimental approach to cost-cutting in his previous incarnations as Renault’s second-in-command, then as Peugeot’s chief, Tavares realizes that the new group won’t grow on savings alone. His two priorities are clear: one is growth in the Chinese market, where neither Fiat nor Peugeot has succeeded so far, but from which Stellantiswill not withdraw. The second is the move to electric vehicles, where both founding groups had until now mostly played catch-up.

Stellantis (ticker: STLA) made its debut on the Paris and Milan stock exchanges on Jan. 18—and in New York a day later—and the stock is up 13% since then, underperforming most of its European peers in those short two months. The Stoxx Europe 600 Automobiles & Parts index is up 18% over the same period.

The stock took a hit this past week because of shortages of semiconductors, which forced the company to announce that it would delay the production of its Ram Classic pickup trucks in its Michigan and Mexico factories. That sent the shares tanking more than 2% on March 23.

Still, there’s reason for long-term optimism. Deutsche Bank analyst Tim Rokossa has a Buy rating on the shares, with a 20 euro target, or 30%-plus upside from its recent price of about €14.19. The CEO is “in an ideal position to combine the strengths” of the merged companies, he writes.

Indeed, few analysts doubt Tavares’ capacity to merge what were at the time the last two family-owned car makers in Europe. As Peugeot CEO, he successfully managed the 2017 acquisition and integration of General Motors ’ former European subsidiary Opel into the French group. And the promised €5 billion ($6 billion) of annual cost cuts seem within grasp. About 80% of the targeted annual savings is expected by the end of 2024, according to the company.

The Chinese market and the pivot to electric vehicles will be harder to negotiate without significant investments. Tavares announced an improvement in profitability this year, and the group will benefit in the next couple of years from what might have looked like a weakness two or three years ago: its dependence on the U.S. market—boosted by President Joe Biden’s fiscal stimulus—where three new high-margin Jeep vehicles will come to market. The combined group makes about 60% of its operating profit in the U.S.

Tavares aims for an operating margin of 5.5% to 7.5% this year, up from 5.3% in 2020. Caution is warranted because the continuing spread of Covid-19 in Europe and renewed lockdowns are likely to delay the economic recovery on the Continent.

Tavares has warned that he needs time for a full turnaround, but Stellantis will have several new electric vehicles in 2022 and 2023 to help its planned transition.

Targets on carbon-dioxide emissions are likely to be met once the former Fiat-Chrysler and Peugeot-Citroën vehicles are on joint platforms, Rokossa wrote in a note. Still, the lack of electric vehicles “will limit the multiple that the market is willing to pay for,” he cautioned.