We provide independent research for risk arbitrage and event-driven investors that focuses on public M&A. At its core, risk arbitrage is about turning a live deal into a tradeable set of scenarios: what the offer is worth, why the market is discounting it, what needs to happen for an investor to ultimately receive the offer consideration, and what the downside looks like if the transaction fails. We work with hedge funds, institutional investors, pension funds and sovereign wealth funds to help them assess completion risk and timing, size positions appropriately, and respond quickly when new facts change the risk profile.
Risk arbitrage is often described as “buying the spread”, but the best strategies are not mechanical. Spreads move because the market is continuously repricing regulatory risk, financing risk, shareholder dynamics, political intervention, litigation and simple execution timing. We focus on the specific drivers that matter for each deal, rather than generic checklists, so clients can make decisions based on evidence, not headlines.
In a typical cash acquisition, the target’s share price trades below the offer price until closing. That gap is the spread. The spread exists because the deal may take time to complete, and because it may not complete at all. Risk arbitrage investors seek to earn the spread by underwriting those risks better than the market, recognising that time-to-close can be as important as the headline return. In stock deals, the trade involves a hedge to capture the spread: long the target and short the acquirer to isolate the deal terms.
The key is expected value. A deal is not “good” because the spread is wide; it is attractive when the probability-weighted outcomes justify the risk and the capital tied up. That means building a practical view of (i) the base case path to completion, (ii) the most likely reasons why a timetable can stretch, and (iii) the credible break scenarios and resulting price action. For example, antitrust and competition reviews can produce binary outcomes, but more commonly create a sequence of decision points where remedies, litigation posture and third-party complaints influence timing and certainty. Financing and debt-market conditions can be decisive in sponsor-led transactions, while shareholder votes, appraisal risk and topping bids can reshape payoffs in public company situations.
Risk arbitrage strategies therefore require more than a view on “will it close”. They require a view on when it will close, what conditions may be imposed, how the offer consideration could change, and where value sits if the deal breaks of if the market needs to reprice a deal. We frame this as a disciplined process of catalyst tracking, scenario analysis and risk control, grounded in the merger agreement and the regulatory playbook in the relevant jurisdictions.
Our approach starts with the deal announcements and deal documents. We analyse merger agreements, offer documents, regulatory filings and public statements to assess the landscape and identify the gating items: conditions precedent, outside dates, burdensome-condition standards, termination rights, reverse break fees and any commitments offered.
We then map these terms to the approval pathway, including https://www.manaloadvisors.com/antitrust-and-competition-law>competition authorities, foreign investment screening and sector regulators where relevant. This creates a timeline that is specific to the transaction.
We focus heavily on what actually moves spreads: process milestones and the information that changes market probability. That includes the deal rationale, customer and competitor incentives to complain, the feasibility of divestitures, and the credibility of remedy packages. Where transactions face in-depth antitrust scrutiny or litigation risk, we evaluate the likely market definition battleground, the strength of the evidentiary record, the judge and venue dynamics, and the practical constraints that shape settlement options. Where takeover rules matter, we examine acceptance thresholds, squeeze-out mechanics, second-step implications and disclosure obligations, because these can determine whether a “simple” deal becomes a multi-step process.
We also build break-price and downside frameworks that reflect how merger parties are likely to trade if the deal fails. We undertake a systematic approach that first entails identifying and assessing the merger parties’ most highly correlated peers and industry indices prior to the last undisturbed trading date. We build baskets and initially assess break prices based on this methodology and share price performance. Second, as a deal progresses, we shift to a financial valuation-based break price methodology, using comparables’ trading multiples (EV/EBITDA, P/E), as well as the merging companies’ financial performance since the deal announcement, to arrive at an appropriate break price. We also adjust for the proportion of event-driven stocks in the basket, liquidity, the presence of alternative suitors, and any financial under- or over-performance.
We write in plain language and prioritise decision-useful detail. Clients should be able to see, quickly, what has changed, why it it important, and what it implies for the spread and the path to closing.
If you’re a qualified investor and would like to discuss a live takeover, please get in touch.