The prospects for merger arbitrage remain positive with strong deal pipelines.
Microsoft’s bid to acquire Activision, a gaming company, in an all-cash deal worth $68.7billion, was the largest deal announced as of January. According to Reny Mathew, senior region consultant, and Thomas Macior (both senior directors and portfolio managers for alternative investments), the deal is currently trading at a unusually high spread of approximately 20% annuallyized, with a market implied probability closing of 60%.
Chinese regulators approved the XLNX/AMDThis deal will pave the way for completion and provide more optimism for other deals that require Chinese Regulatory (SAMR) approval. This has been a key performance driver in funds such as The Merger Fund (MERIX)According to Mathew, Macior, Fucigna
Deal spreads have increased in the current environment and are attractive relative to other asset classes.
The median spread was 6.7%. LIBORAccording to, January 28th is the deadline for annualized spreads of between 0% and 30%. This compares to 4.4% on December 31, 2021. UBS.
The spread of deals continues to be very bifurcated between high-probability outcomes and the low probability ones. WCMYou should seek out those that are more uncertain and have a higher risk of failure.
For example, the 10 deals that offer the highest annualized profit ranges from 369 to 369 (JOBS/Garnet faith Limited) to 29.97%AZPN/EMRAccording to Mathew and Macior Fucigna, Macior and Macior
Despite spreads increasing during the month, Westchesters funds held strong and offered good returns relative other asset classes.
Westchester has been approaching merger arbitrage and the wider event-driven space with a conservative approach. It seeks to evaluate each deal individually and identify high probability outcomes that offer clients a maximum return per unit of risk.
Westchester also seeks out to diversify away or hedge any exogenous dangers in its portfolio so that it’s return is almost entirely dependent on capturing a deal spread or risk premium for an event. Every investment the firm makes must have a date with fate and be publicly announced.
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