Risk Arbitrage, A Probabilistic Approach Over 1998-2010 in the US and Canada

Abstract:     
This document is a quantitative analysis of risk arbitrage strategy across a sample of 1,911 M&A deals announced between January 1998 and September 2010 in the US and Canada. The study quantifies the main specific risk factors for each merger & acquisition deal from a probabilistic standpoint. It emerges that the biggest risk factors are: intent of the offer (hostile or friendly), buyer typology (industrial or financial), the relative size of the buyer compared to the target and the risk arbitrage spread calculated over the first five days following the announcement of the bid. Ultimately, it is hoped that this document will provide managers with an interpretation of the mergers & acquisitions market as well as a decision-making tool to complement traditional qualitative analysis.

Number of Pages in PDF File: 18

Keywords: Risk arbitrage, merger arbitrage, merger & acquisition, termination probability, risk factors

JEL Classification: G10, G12

working papers series