I understand the investment strategy behind merger arbitrage, but what kind of valuation is factored into a merger arbitrage trade? Is it only researching the proposed risks involved, probabilities (how would you estimate these), and other factors that may affect the deal? Or does valuation of the target/acquirer come into account?
Any actual valuation examples would be extremely helpful. Thanks!
Any help?
Not a merger-arb expert
But what to do you mean by valuation? At what point in ANY investment decision is valuation NOT important? A little confused
Read "Deals--deals--and More Deals: Risk Arbitrage : the Announcement of a Merger is the Beginning of an Opportunity". Got to meet Mario Gabelli and he sent me a copy of it (it was written by his wife). It provides a lot of cases and takes you step by step through the logic behind the investment decisions made by GAMCO. But to answer your question, yes, valuation of the companies is important. It can help you decide by how much the company is overpaying and if the target company will be satisfied with the premium it is receiving to put it simply.
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