67 WALL STREET, New York - June 25, 2014 - The Wall Street Transcript has just published its Investing Strategies Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Reactionary Investing - High-Quality Companies - Investing in Special Situations - Secular Growth Themes - Large-Cap, Deep-Value - Defensive Growth Approach - Long-Term Investing - Event-Driven Investment Opportunities
Companies include: Apple Inc. (AAPL), Microsoft Corporation (MSFT) and many others.
In the following excerpt from the Investing Strategies Report, a highly experienced and professional portfolio manager discusses the identification of potential special situations and his top picks for investors:
TWST: Could you please start with an overview of the fund in relation to the sleeve you manage?
Mr. Gallagher: The fund itself and the special situation substrategy that's part of it really builds off the observation that gains in event-driven investment opportunities typically are driven more by corporate events, which can have some level of predictability, versus gains that are driven primarily by earnings, market or macroeconomic developments, which are inherently less predictable. So if you invest in a company that chooses to pursue a merger transaction at a premium to the unaffected stock price, you invest in a company that chooses to undertake a transformational restructuring involving a major asset sale or spinoff, you have a chance to generate investment gains that will be less tied to market moves. That is the underlying philosophy of the fund and the special situation substrategy within the fund.
And to do this, we seek to identify and then invest in companies that are more likely than not to pursue transformational steps to maximize shareholder value either through merger or restructuring transactions. In some cases, incumbent management teams pursue these transactional opportunities on their own to drive higher share value, but we're seeing in an increasing number of cases where companies are being forced to pursue these transactional opportunities due to the presence of an activist shareholder.
TWST: Can you clarify how your sleeve differs from the merger/acquisition arbitrage sleeve?
Mr. Gallagher: The merger arbitrage sleeve focuses activities entirely on announced transactions, so any kind of an announced M&A event such as a definitive merger agreement or a hostile transaction, or when a company announces publicly that its considering a merger transaction; those investments are the focus of the merger arbitrage sleeve. The special-situation sleeve is - the difference there is - we're looking to be more I would say anticipatory, meaning we're trying to look for signs within a company that they're considering the announcement at some point of a transformational merger or transformational restructuring. So we're trying to identify those companies early and invest early in the transaction cycle if you will, and then try to capture a larger portion of the gain that typically accrues from those announcements.
The merger arbitrage substrategy, I would characterize it as a lower volatility, low return, lower market sensitivity substrategy; the special situation substrategy is high return but entails higher risk, and during the pendency the investments of higher market sensitivity during the investment.
TWST: Where does your process begin for identifying potential special-situation opportunities? Where do you start?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
- Mergers, Acquisitions & Takeovers