New life for M&A derivatives

The surge in M&A deals this year has led to a sharp rise in the volume of deal-contingent swaps as firms look to protect themselves against naked exposures in the event of a failed bid. At the same time, a variety of new, large-scale exotic equity derivatives transactions has emerged

Historically, successive waves of mergers and acquisitions (M&A) activity were welcomed by investment banks for one reason: the advisory and capital markets business they stood to gain. During the most recent wave of M&A, banks have been able to pocket up to 100 basis points per deal in advisory fees and up to 200bp for work related to capital-raising ahead of acquisitions. Over the past year