A Look at M & A Arbitrage Activity

The merger arbitrage activity has been slow of late and it is no surprise. I mentioned in January that I expected mergers and acquisitions to slow down as financing became difficult to acquire.

In particular, merger arbitrage opportunities have been scarce ever since the failed Emageon (EMAG) deal with Stanford (my theory, anyway) and the spread for other mergers has not been wide enough to offer any real decent returns.

I invest in mergers when it is close to finalized in order to reduce as much risk as possible. Step 5 is usually a good time to invest in a merger if the spread is still decent on an absolute basis after considering fees.

I do not invest after a merger announcement as there are too many variables to consider.

1. Due diligence by both parties
2. Financing and regulator approval
3. Get preliminary shareholder sentiment (or controlling shareholder approval)
4. Obtain regulator (SEC, FCC, any and all) approval
5. Get final shareholder approval at a meeting called for that purpose
6. Insiders continually vesting or buying shares

Pending Merger Acquisition Arbitrage List

Looking at this list, there isn’t much to take advantage of. Image Entertainment (DISK) has far too much risk involved and the company fundamentals are terrible for it to be a standalone company.

Fat Pitch Financials recently tweeted about an initiation of En Pointe Technologies (ENPT) which does seem to be the best merger at the moment.

Symbol	Announced Date	Closing Value	Last Price	Closing Date	Profit	Annualized Profit
DISK	11/20/2008	$2.75	$1.58	4/6/2009	74.05%	0.00%
ACBA	9/10/2008	$5.14	$6.04	4/30/2009	-14.97%	-237.58%
FRBK	11/10/2008	$7.12	$7.60	4/30/2009	-6.26%	-99.31%
NTMD	1/27/2009	$0.80	$0.75	4/30/2009	6.67%	105.80%
BFBC	11/10/2008	$9.21	$9.68	4/30/2009	-4.86%	-77.07%
CVTX	3/12/2009	$20.00	$19.94	4/30/2009	0.30%	4.78%
EQ	10/27/2008	$37.94	$37.38	6/30/2009	1.49%	6.46%
CYCL	11/7/2008	$8.50	$8.32	6/30/2009	2.16%	9.40%
ZICA	2/26/2009	$0.81	$0.77	6/30/2009	4.68%	20.32%
ABNJ	12/15/2008	$7.83	$9.50	6/30/2009	-17.57%	-76.35%
PBKS	12/19/2008	$8.07	$7.52	6/30/2009	7.29%	31.67%
AANB	1/2/2009	$2.38	$2.25	6/30/2009	5.87%	25.53%
SWIM	1/8/2009	$8.89	$8.75	6/30/2009	1.58%	6.86%
AVNX	1/27/2009	$28.97	$2.14	6/30/2009	1253.96%	5448.77%
NCX	2/23/2009	$6.00	$5.83	6/30/2009	2.92%	12.67%
GVHR	3/5/2009	$4.00	$4.01	6/30/2009	-0.25%	-1.08%
ENPT	3/11/2009	$2.50	$2.05	6/30/2009	21.95%	95.38%
LIMC	4/3/2009	$2.48	$2.25	8/15/2009	10.44%	29.32%
MXGL	3/2/2009	$16.77	$16.48	9/30/2009	1.78%	3.69%
MV	4/1/2009	$25.72	$25.04	9/30/2009	2.71%	5.61%
WYE	1/26/2009	$46.35	$42.48	10/31/2009	9.10%	16.05%
TKTM	2/10/2009	$3.88	$3.81	11/15/2009	1.71%	2.81%
SGP	3/9/2009	$25.63	$23.20	12/31/2009	10.49%	14.28%
FCVA	4/3/2009	$9.25	$8.00	12/31/2009	15.62%	21.27%

Disclosure: No positions held at time of writing