Donald Trump's return to the White House raises many questions, not least about the impact of his policies on the economy and financial markets. Risk arbitrage strategies, which focus on mergers and acquisitions, are not left out. What can we expect from this new administration? What challenges and opportunities lie ahead?
As we enter 2025, the arrival of a new President in the White House is generating a great deal of uncertainty. Merger arbitrage (M&A) strategies are no exception to the question: What impact can we expect from the change of administration on this asset class ?
Our experts have put pen to paper.
Merger arbitrage (M&A arbitrage) strategies involve investing in companies involved in M&A transactions, with the aim of profiting from a difference between the price offered for the buyout and that observed on the market, and generating a return that is independent of market trends.
Good news : Against a backdrop of solid economic growth, likely further rate easing by the Federal Reserve, and a new US Administration with a pro-business approach, M&A activity could rebound in 2025 - which means plenty of opportunities ahead for arbitrageurs !
The spreads[1], the main performance drivers of Merger arbitrage strategies, evolve according to multiple parameters, and in particular the risks related to the transaction: Financing, the multiple approvals required, and other elements. They thus reflect their risk. To what extent are these spreads affected by the elections?
Our experts have pursued this analysis for over twenty-five years.
[1] The spread from merger arbitrage is the difference between the price offered for the target and its market price.
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”It is essential that the manager of a Merger arbitrage strategy has a thorough understanding of market dynamics and the specific parameters of each operation. This will enable him to build the positions he deems most suitable to take full advantage of spreads.
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