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Guide to Merger Arbitrage Investing


oplia
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We have compiled quite an extensive guide on how to analyze and invest in Merger Arbitrage situations. It took us a while to put it together, so really hope the readers will find it useful.

 

Full article can be found <a href="https://www.specialsituationinvestments.com/2020/09/guide-to-merger-arbitrage/?utm_source=COBF%20-%20Main%20link&utm_medium=COBF&utm_campaign=COBF%20-%20Merger%20Arbitrage">here</a>.

 

In essence, and this is crucial, opportunities to profit from merger arbitrage arise from investor's assessment that the market is overestimating/incorrectly pricing the risks of potential failure, and then betting on the successful closure of the merger (or from pure luck - by guessing correctly which mergers will close successfully).

 

Therefore, the first question to be asked upon stumbling across a seemingly attractive merger arbitrage case is - why does this spread exist? All cases are different, but several of the most prominent risks could be shareholder approval, regulatory consent, reputation, and the true intentions of the bidder, hedging availability, and so on. Therefore, the most important job for merger arbitrageur is to analyze these risks alongside the basic transactional information and put all of the pieces into one big picture, which will then help him/her to decide whether the particular arbitrage case is worth a bet or not.

 

This continues our education series, with two previous posts on <a href="https://www.specialsituationinvestments.com/2020/06/analysis-of-different-split-off-trading-strategies/?utm_source=COBF%20-%20Splitoff%20link&utm_medium=COBF&utm_campaign=COBF%20-%20Merger%20Arbitrage">Split-off Trading Strategies</a> and <a href="https://www.specialsituationinvestments.com/2020/07/analysis-of-us-listed-chinese-going-private-transactions/?utm_source=COBF%20-%20Chinese%20link&utm_medium=COBF&utm_campaign=COBF%20-%20Merger%20Arbitrage">US-Listed Chinese Going Private Transactions</a>

 

Note for admins/moderators: the links above are to my own website, so if this is considered advertising, feel free to take down the whole post. However, all linked content is freely accessible and I think CoB&F readers would find it useful.

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