An Overview Merger Arbitrage

The MMCAP Fund, founded by Hillel Meltz and Matt MacIsaac, is an asset-management firm that employs a number of experienced hedge fund managers. The MMCAP Fund provides clients with a variety of banking and investing strategies, including merger arbitrage.

Mergers and acquisitions between major corporations are perhaps the most significant occurrences that can take place in the world of finance. There are a number of investment strategies based solely around one of these events, such as merger arbitrage. While traditional portfolio managers view a merger in terms of the total, combined value after the deal takes place, merger arbitrage experts focus on the likelihood of the merger actually taking place. While two companies discuss the potential of a merger, the stocks of both entities are sold at a slight discount due to the uncertainty of their respective futures. During this time, merger arbitrageurs purchase an equal amount of stocks in both companies in order to offset risk. After the merger is completed, stocks return to their former price and can be sold for profit.

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