M&A activity and risk arbitrageQuarterly report

Q1 2015

RISK ARB BY OFI

APRIL 2015

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TABLE OF CONTENTS

1. M&A activity

2. Termination rate

3. Average return at inception

4. Percent of deals trading above terms and market sentiment

3

M&A ACTIVITY IN VALUE

TITRE DE LA PRÉSENTATION

● North America: -1% Q1 2015 vs Q1 2014

● Europe: +44% Q1 2015 vs Q1 2014

Sources: OFI AM

NORTH AMERICA EUROPE

Sources: OFI AM

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

0

100

200

300

400

Deal value (quarterly - right axis) SX5E (left axis)

EURbn

600

800

1000

1200

1400

1600

1800

2000

2200

0

100

200

300

400

500

600

Deal value (quarterly - right axis) S&P 500 (left axis)

USDbn

4

M&A ACTIVITY IN NUMBER OF DEALS

TITRE DE LA PRÉSENTATION

● North America: +100% Q1 2015 vs Q1 2014

● Europe: +67% Q1 2015 vs Q1 2014

Sources: OFI AM

NORTH AMERICA EUROPE

Sources: OFI AM

600

800

1000

1200

1400

1600

1800

2000

2200

0

20

40

60

80

100

120

Number of deals (quarterly - right axis)

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

0

5

10

15

20

25

30

35

40

45

50

Number of deals (quarterly - right axis) SX5E (left axis)

5

LAST 12 MONTH TERMINATION RATE

TITRE DE LA PRÉSENTATION

Sources: OFI AM Sources: OFI AM

NORTH AMERICA EUROPE

0%

5%

10%

15%

20%

25%

average

- 1σ

+ 1σ

-5%

0%

5%

10%

15%

20%

25%

average

- 1σ

+ 1σ

6

RISK ARBITRAGE SPREAD

TITRE DE LA PRÉSENTATION

Sources: OFI AM Sources: OFI AM

NORTH AMERICA EUROPE

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0%

5%

10%

15%

20%

25%

- 1σ

+ 1σ

average

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0%

5%

10%

15%

20%

25%

average

- 1σ

+ 1σ

7

PERCENTAGE OF M&A DEALS TRADING ABOVE TERMS AND MARKET SENTIMENT

TITRE DE LA PRÉSENTATION

Sources: OFI AM Sources: OFI AM

NORTH AMERICA EUROPE

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0%

10%

20%

30%

40%

50%

60%

70%

average

- 1σ

+ 1σ

Bull

Bear

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0%

10%

20%

30%

40%

50%

60%

70%

average

- 1σ

+ 1σ

Bull

Bear

8

MAIN ASSUMPTIONS

● Data are extracted from our proprietary database MAGMA

● MAGMA features 2,200 M&A deals in North America and 1,400 in Europe over the 1998-2015 period

● Main assumptions▪ Target is listed with an EV over $500m in North America and €300m in Europe▪ Deals that cannot be arbitraged are eliminated: stock with poor liquidity, unclear bid details, bids for less

than 100% of the capital, etc.

● Definitions▪ Termination rate: number of failed deals that generated loss for arbitrageurs / total number of deals

completed or failed. Calculations are made on a monthly basis using a 12 month rolling average.▪ Risk arbitrage spread: annualised yield of the risk arb strategy less the risk-free rate at the time the deal

is announced. Calculations are made on a monthly basis using a 6 month rolling average.▪ Percentage of deals trading above terms: number of deals with a negative risk arbitrage spread / total

number of announced deals. Calculations are made on a monthly basis using a 12 month rolling average.

TITRE DE LA PRÉSENTATION