Accelerate Arbitrage Fund
The Accelerate Arbitrage Fund (TSX: ARB) aims to generate a premium
return to cash in a tax-efficient manner through SPAC and merger arbitrage.
About the Fund
The Accelerate Arbitrage Fund (TSX: ARB) provides exposure to SPAC arbitrage and merger arbitrage investment strategies. The Fund aims to generate consistent, low-volatility returns by investing in listed equity, debt or derivative securities of target companies involved in mergers or corporate actions, while selling short certain listed equity, debt or derivative securities of acquirer companies involved in mergers or corporate actions, where applicable.
What is SPAC Arbitrage?
SPAC Arbitrage is an investment strategy that seeks to acquire shares or units of a special purpose acquisition company (“SPAC”) at or below its net asset value (“NAV”) in order to generate a return through either:
- an exit at a premium to NAV once the SPAC announces a business combination
- an exit at NAV, being the IPO price plus accrued interest, through a redemption before the deal vote or through the liquidation of the SPAC
What is Merger Arbitrage?
Merger Arbitrage is an investment strategy that capitalizes on the spread between a company’s current share price and the consideration paid for its acquisition in light of an announced merger transaction. The merger risk premium— or the spread between the acquisition price and the trading price of a stock—compensates the arbitrageur for the risk of the acquisition failing to close. The merger arbitrageur’s goal is to “lock in” the spread earned upon deal closing and to profit from buying a takeover stock at a discount to its acquisition price.
- Outperform the S&P Merger Arbitrage Index
- Generate consistent, low-volatility returns
- Provide an attractive distribution yield
ARB TRADING DATA
Heads I Win, Tails I Still Win: Low-Risk Investing With SPAC Arbitrage
The Number One Thing SPAC Investors Should Know
Merger Arbitrage: A Strategy For Consistent Profits In The Market
Why Merger Arbitrage Deserves A Spot In Investor Portfolios
A Practitioner’s Guide to Merger Arbitrage
5 Reasons Why Merger Arbitrage Is A Must-Own Investment Strategy
The Art of SPAC Arbitrage
Understanding The Role Of A Special Purpose Acquisition Company (SPAC)
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April 7, 2020
Accelerate Financial Technologies Inc.
$0.20 per quarter
SPAC and Merger Arbitrage Explained
Deal Evaluation & Selection
Accelerate uses regulatory filings, media, proprietary data screens, and sell-side analyst reports to source merger arbitrage investment opportunities. Once sourced, a deal is then placed into the merger database where the team conducts a review of the data through; press releases, merger agreements, proxy statements, and additional due diligence materials. A proprietary “AlphaRank” risk rating is then assigned to each merger transaction. Furthermore, Accelerate calculates 2 key factors in the selection process; the merger yield and the implied odds of success to determine the securities’ risk rating. If the merger yield is attractive, and exceeds the investor’s cost of capital, the team will move forward with the next step in the investment process.
Five key factors are considered to ensure that risks are appropriately managed:
• Does the buyer lack credibility?
• Does the financing source lack credibility?
• Is the deal non-definitive?
• What is the extent of the regulatory risk?
• Is there a buy-side vote?
Buy-side votes allow shareholders to vote against the original proposed deal in order to get a premium from a hostile interloper offering more, causing potential losses for an arbitrageur.
Position Sizing & Portfolio Management
This process aims to limit the risk of loss on a deal break to a -2% NAV decline. “AlphaRank” risk ratings are also considered when allocating position sizes. Riskier deals may represent smaller allocations in the portfolio.
Merger arbitrage is typically conducted on a company’s common shares. However, there may be other opportunities to earn a merger spread, including through a company’s preferred shares or bonds, or through derivative securities such as options or warrants. If one is trading the common shares of a target in an all-cash deal, then the trade is fairly simple: the trader places their bid for the target at the desired price and waits to get hit. If the deal includes stock consideration, the trader first has to ensure the short borrow is secured in order to short the acquiror’s stock. Once short borrow has been secured, the trader can set up the spread. To implement this type of trade, one should use a pair trader. Pair traders work by trading both legs of a merger arbitrage spread, being the target and acquiror, at the same time. The trader sets the desired merger spread into the pair trading system, based on the merger consideration, and gets filled on both legs long and short.
After successful deal analysis, risk mitigating, position sizing, and execution, the arbitrageur goes into monitor-mode. In the case of tender offers or takeover bids, shareholders must tender shares to receive the consideration amount, whereas in mergers, a vote must be cast and the type of consideration (cash or shares) elected. Shareholder votes and regulatory approvals need to be settled prior to the deal completion.
Performance as of 2023-August-31
|Ticker||1 Month||3 Months||YTD||1 Year||3 Year||Since Inception|
Deal Type Exposure
Fund Holdings as of 2023-August-31
Top 20 Long Positions
|TransAlta Renewables Inc||4.1%|
|Focus Financial Partners Inc||3.8%|
|Dialogue Health Technologies Inc||3.8%|
|Sculptor Capital Management Inc||3.8%|
|Churchill Capital Corp VII||3.7%|
|Accretion Acquisition Corp||3.7%|
|Syneos Health Inc||3.6%|
|Radius Global Infrastructure Inc||3.6%|
|Learn CW Investment Corp||3.5%|
|Sovos Brands Inc||3.4%|
|Williams Rowland Acquisition Corp||3.4%|
|Osiris Acquisition Corp||3.3%|
|AltC Acquisition Corp||3.2%|
|Horizon Therapeutics Plc||3.2%|
|FutureTech II Acquisition Corp||3.2%|
|Crixus BH3 Acquisition Company||3.1%|
|Juniper II Corp||3.0%|
|Churchill Capital Corp VI||3.0%|
|OPY Acquisition Corp I||3.0%|
Short Security Name
|Exxon Mobil Corp||-4.1%|
DISCLAIMER: This information on this web page does not constitute investment, legal or tax advice. Performance is inclusive of reinvested distributions. Past performance is not indicative of future results. Any data provided on this web page should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information on this web page is based on market conditions and may fluctuate and change without notice. Accelerate does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this website and any liability is expressly disclaimed.