Strategy

Our analyses revolve around event driven investment strategies, otherwise known as ‘risk’ or ‘merger’ arbitrage, that involve taking long or short positions in the securities of publicly-traded companies undergoing significant corporate change.

These highly specialised event driven investment strategies seek to profit from pricing inefficiencies that may occur before, during or after a corporate transaction, such as an M&A deal or other non-M&A corporate events. Event driven investing seeks to capture low correlated, absolute returns from securities that typically do not trade on company fundamentals but rather on the expectations surrounding potential outcomes associated with specific corporate events.

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Event driven investment strategies

Definitive merger arbitrage

Our primary focus is a specific type of event driven investment strategy known as risk arbitrage or merger arbitrage. The analysis undertaken involves analysing publicly-traded companies that have signed definitive agreements to go through major corporate change, namely mergers & acquisitions (M&A). These publicly announced definitive M&A transactions include mergers, takeovers (including hostile takeovers), leveraged- and management-buyouts, tender offers, minority buyouts and squeeze-outs.

Every M&A transaction entails risks for deal completion and through rigorous analysis we strive to understand and identify these risks ahead of other investors pricing them in the marketplace. We undertake thorough due diligence and analyse countless factors that can impact an M&A deal successfully completing or failing. These include and are not limited to consummation considerations such as financial valuation, antitrust and political effects, competitive bids, shareholder voting likelihoods, lawsuits, local takeover rules and corporate governance, as well as trading considerations such as deal terms, timing, expected dividends, risk arbitrage spreads, annualised returns, collars, proration, implied probability of completions and risk/return multiples.

Pre-event opportunities

Prior to companies signing a definitive merger agreement, the companies involved may publicly confirm that discussions are being held or speculation may surface in the press of an upcoming M&A transaction. Many event driven investors choose to buy shares of a company which they believe will be taken over in the coming days or months. This is because, when a corporation announces a firm intention to acquire another, it generally offers to buy the takeover target’s stock at a premium over the prevailing market price. Upon announcement, the target firm’s stock price generally rises. We analyse these pre-announced M&A transactions, known as “pre-event opportunities”.

Our pre-event strategy involves analysing the feasibility of a potential deal turning into a definitive M&A transaction and we screen press announcements, market rumours, sector trends and themes to identify potential opportunities. We carry out fundamental analysis on select potential event driven deals and determine whether or not the current stock price(s) of the companies affected appropriately reflects the likelihood of a firm transaction and thus the risk and return of a potential investment. We analyse publicly-traded pre-event situations based on valuation, antitrust, friendly/hostile approach, major shareholders, potential counterbidders and political opposition, amongst other considerations.

Special situations

We look for event driven investment opportunities within all major corporate transactions, including those that may arise before, during or after non-M&A events such as shareholder activism, spin-offs, capital raisings and debt restructurings. We refer to these as special situations and our analysis focuses on the potential outcomes of the specific event and any event driven investment opportunities in the publicly-traded stocks involved.