Paul Glazer explains how cross-team synergy, a loosening regulatory backdrop and larger $10bn-plus deals are fuelling conviction-led arbitrage.
Under its investment umbrella, Glazer Capital has three defined investment strategies: merger arbitrage, SPAC arbitrage and convertible arbitrage. The first two of these have a clear and defined endpoint, whilst convertible arbitrage is a longer-term horizon investment, with typical maturities of three to five years. The firm's founder, CEO, and CIO, Paul Glazer, has created a clear, defined “synergy” across the investment teams: “when a deal involves an outstanding convertible bond, we can assess whether it's more attractive to invest in the convertible or equity.”
Glazer Capital is unique in its approach to merger arbitrage, with Glazer outlining that the firm only acts upon trades it believes in with high conviction: “we are really looking to make money on every position we hold,” he outlines. Global M&A deal value is on track to reach approximately $4tn, up 13% year-on-year according to PWC, a reflection of the looser regulatory environment in the US that is more conducive to deal activity. According to Glazer, “approximately 95% of signed merger agreements in the United States result in completed deals, with the remaining 5% tarred with greater regulatory or legal issues that may not yield returns.
The more favourable investment environment has been a huge advantage to the firm. Moreover, other regions, including Europe, have begun to be more lax in their regulatory conditions in response to the changes in the US. Glazer welcomes these adjustments. The firm recently opened a London office to capitalize on this growing opportunity set and to have greater human resources on the ground.
The firm also sees great opportunities across APAC. Glazer remembers a time when Japan was never particularly supportive of mergers and acquisitions as they were associated with job losses, “the country has a social contract built around the idea of lifetime employment. But that has started to change over the past two or three years as the country deals with an aging and declining population.” The robust and well-developed legal system of the country also makes it a good market to invest in.
As aforementioned, convertible arbitrage is a core tenet of the investment focus for the firm. Recent years have coincided with convertible issuance hitting record highs compared with previous years. “Companies such as DoorDash, On Semiconductor and Ciena are issuing convertible bonds that are investment grade or close to investment grade.” This is a point of note, as most of the investments they make look to trade gamma and make bets on increasing volatility by taking long positions. Issuances from companies such as DoorDash have highly volatile equities, which is an attractive proposition, complementing their high credit quality.
Moving forward, the continuing M&A boom and the increasing number of high-value deals above $10bn are creating great opportunities. “Larger deals help us to avoid some of the position-size constraints that we encounter with smaller transactions. We have seen fertile areas in sectors such as biotech and pharmaceutical that weren’t previously available to us.” Glazer is increasingly bullish towards the firm's continued prospects, believing the addition of a dedicated technology team to complement the “biggest and most active merger arbitrage team in the world” will allow for the continued exploitation of market dislocations.
Link to watch the full interview here.
