David Heden, president of HGC Investment Management in Toronto, runs a hedge fund that’s about 90% focused on definitive merger arb.
He illustrates his approach with a deal he’s currently working on: Slate Properties’ acquisition of Huntington Capital. Slate’s buying Huntington for $13.25 per share, but the stock’s trading at $13.16. That’s a $0.09 spread, which is 68 bps. The deal’s supposed to close October 21. If you annualize that return—68 bps in 52 days (stock purchase date to deal close)—it’s 6%.
Heden always has about 25 to 30 deals going. Doing a high-volume of small-return deals has returned 38% since his fund’s inception (14 months), and 23% year-to-date. Clients are earning roughly 2% a month.