The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Merger arb funds step up to the plate

return to M&A's new dealmakers set to take the stand

A massive allocation shift out of long-only public market investment vehicles and into alternative investments means that hedge funds are playing an increasingly dominant role on the buy side – particularly in determining the outcomes of M&A transactions. 

Although merger arbitrage funds, a type of special opportunity vehicle, represent perhaps less than 10% of the total alternative investment universe, they take a big share of high-profile M&A deals, routinely snapping up more than half the free-floating equity. Some analysts estimate that there is now roughly $1 trillion in a huge assortment of funds targeted at financing and betting on buyouts – whether MBOs, LBOs, M&As, or private-equity infusions.

Merger arb plays

Typically, a merger arb fund buys the stock of the company about to be taken over, such as MCI, and shorts the acquiring company, such as Verizon, betting that the resulting share price movements will work to their advantage. Historical data strongly support the validity of this strategy as the acquirer's shares usually underperform the market from the point of deal announcement to around the time of its closing.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree