U.S. Stocks Continue to Fall

Catch Up Quick

• As of 9.30.2020, China had purchased $58.8B of goods covered by the first phase its trade deal with the U.S., falling short of the $108B target needed by that time to be on track to reach the 2020 deal target

• Qualtrics founder Ryan Smith bought a majority stake in the Utah Jazz for $1.7B

• Netflix raised prices on standard & premium plans to $14 & $18 a month

• Goldman Sachs believes Democratic sweep would unleash much more stimulus

• Walmart removed all guns and ammo displays from its 4.7K U.S. stores this week

• The sale of Tiffany & Co. to LVMH has resumed with a new price tag of ~$15.8B

• ~22.7M Americans are still collecting some form of unemployment (DoL)

• U.S. GDP expanded at a 33.1% annual pace in Q3 2020

Thought of the Day

• Yesterday, Marvell announced its acquisition of rival hardware-maker Inphi for an estimated $10B

• Within the past few months, the semiconductor industry has seen a sharp wave of consolidatory activity (AMD’s acquisition of Xilinx → Nvidia’s acquisition of Arm → Analog Devices’ acquisition of Maxim Integrated)

• Marvell is planning to pay a whopping 134 times Inphi’s EBITDA in this transaction, valuing it 2 to 3 times higher than the typical acquirer of semiconductor assets in recent markets

• Inphi is well known for making computer chips specifically for data centers, facilitating the rapid movement of information on the fronts of both cloud and 5G networks

• Stepping back, Nvidia recently paid ~40B for Arm Ltd.

• While the associated relative valuation is unknown due to the opacity around financial stats of private entities, it certainly appears as a highly generous valuation

• Arm specializes in making chips and other hardware components meant for hosting ultra-efficient machine learning inference, among many other A.I applications

• While the semi vertical is a dinosaur within the software-dominated tech industry, subsector trends may very well lend holistic insights

• From a relatively quick glance, we can clearly see industry vanguards strategically investing in what they believe to be ultra high growth verticals in the long term
  

The Bottom Lines

• While many investors try to predict incoming acquisitions, investing in the target to ride up a hefty premium if a deal is announced, a more effective approach to capitalize on these opportunities is to simply track money flow implied by mergers & strategic acquisitions— this is different from monitoring “smart money”

• From an operational perspective, financials institutions don’t spend day and night in the trenches of industry, like strategic acquirers do!

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Note: When Facebook bought WhatApp for $19B in 2014, hedge funds were notoriously bearish on the deal, while it turned out to arguably be one of the best acquisitions of all time