I don’t know how successful the Trump administration has been with making America great again but one thing is for certain, with the changes in the leadership at the FTC and DOJ, they have certainly made merger arbitrage great again. At the start of the year, there was a certain level of disbelief that the tide has turned after the DOJ decided to proceed with a lawsuit to block HPE’s acquisition of Juniper Networks.
During our conversation with Luis Sanchez in episode 24 of The Special Situation Report podcast, we had originally planned to discuss his decision to focus on mid-level investment banks in 2025 as a way to play the rebound in M&A but we had so much fun discussing contract research organizations (CROs) and Netflix (NFLX) that we didn’t get a chance to get to the investment banks. Here is what Luis wrote about them in his Q4 2024 investor letter:
M&A activity is expected to explode higher in 2025. One interesting proxy for this anticipated trend is the share price appreciation of boutique investment banks which generate a disproportionate amount of fees from M&A deals. Every single US-listed investment bank outperformed the S&P 500 in 2024 and the average return for the subset of ‘boutique banks’ was greater than 60%. As an aside, we invested in a handful of investment banks during 2024 to participate in an M&A recovery.