Event-driven Arbitrage

Once a month, the Ipreo Blog reaches delves into our Better IR newsletter to spotlight a particularly compelling piece.

In the past we’ve revisited IR’s role in the IPO process, high-frequency trading, and investor activism.

This month, we’re going to dive into a piece from our latest issue, which covers event-driven arbitrage.

From February 2015’s Better IR: “Event-Driven Arbitrage and Investor Relations”

Companies will merge with or acquire other companies for a variety of reasons: synergy, diversification, growth, supply chain pricing power, and decreased competition are all seen as drivers behind mergers and takeovers. In the event of a merger or takeover, publicly traded companies’ shareholder bases will normally shift; long-term, vanilla investors will often start to exit the stock and short-term, fast-money investors will start to buy into the stock. Event-driven, merger arbitrage investors are one of the types of investors that will start to pop up on shareholder lists that management and IR may not recognize. A merger arbitrageur examines the risks associated with mergers and acquisitions and attempts to capitalize on the trading spreads that these events often create.

IROs will typically see event-driven investors as a source of annoyance; in many cases, arbitrageurs are not interested in the long-term growth outcomes of their investments. However, identifying and communicating with the investors most commonly involved in this type of activity may actually offer some value.

Ipreo analyzed the largest M&A deals of U.S. publicly traded companies acquired between 9/30/11 to 10/31/14 that had a total transaction value greater than $250M.

For the full results of the study, and the rest of February’s Better IR, click here.