Executive summary
Deal flow is back: global M&A has resumed after a pause, reopening a larger investible universe for merger arbitrageurs.
In the US, vanilla deals dominate, producing more moderate spreads. In Europe, deals concentrate in mid-market, which offers a juicer playing field, with higher and more dispersed spreads.
The M&A rally has legs, supported by macro and credit conditions. Besides, external growth is once more an appealing option for companies, which are showing more animal spirit, while private capital, under pressure to put dry powder to work, add fuel.
Beyond surging acquisition volumes, the pipeline of deals appealing to arbitrage should sustain alpha generation, supported by a healthy flow of complex operations, few breakups, diversified maturity and risk profiles, and more navigable regulations.
From an allocation perspective, the merger strategy delivers valuable diversification, with returns comparable to fixed‑income markets but driven by fundamentally different factors. Merger risks also differ from bonds.
As a result, merger arbitrage can improve fixed-income portfolios’ risk/reward, thanks to the strategy’s short duration, low correlation to government and Investment Grade bonds, cash carry, and event alpha.
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