12 Finance Experts’ Tips For Investors Facing A Potential M&A Deal

Some investors may not know how to react when they hear a company they hold significant stock in is engaged in merger or acquisition negotiations—is it good news, or bad news? They may wonder whether the stock will significantly lose value or if there is more underlying the proposed deal than the market is letting on.

However, a company’s being engaged in M&A negotiations doesn’t necessarily mean bad things are coming for stockholders. As financial experts, many members of Forbes Finance Council have advised their clients on how to navigate their portfolios during situations like this. Here, 12 of them offer their best advice for investors who own stocks involved in major M&A deals.

1. Look At The Potential Value Creation

An M&A event: value creation or destruction? It comes down to aspects the acquirer can control and market conditions that can rapidly change a good deal into a financial challenge (see Twitter). The acquirer’s shareholders must understand integration capabilities and where the potential value creation is. From the target’s perspective, it’s about valuation and the probability of closing. – Santiago Guzman, Cap8

2. Assess The Likely Outcome, And Be Patient

An acquirer’s stock often sells off immediately after news of an acquisition, despite best efforts to communicate a compelling deal rationale. If in the end the acquisition positively impacts financial and performance metrics, the buyer should be rewarded for creating shareholder value with a higher stock price. Investors need to assess the likelihood of a positive outcome and be patient. – Moira Conlon, Financial Profiles


Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?


3. Reevaluate The Company

When a company announces that they are involved in M&A negotiations, take the time to reevaluate the company as an investment. Is it still a stock you want to own based on the fundamentals and current valuation? If so, then you can have confidence in your position even if the merger doesn’t close. If not, use the opportunity to sell and realize the merger premium. – Christopher Mizer, Vivaris Capital

4. Sell (Depending On How It Is Trading)

If it’s a cash deal and there’s a high likelihood of completion, it may be prudent to sell if the stock is trading close to the acquisition price. You can reinvest the proceeds in an investment you think will have greater return potential, rather than sitting on a stock with no upside. – Sarah DerGarabedian, Parsec Financial

5. Expect Volatility In Both Firms’ Share Prices

The premium paid will likely drive up the price of the target firm and decrease the price of the acquiring company. However, the acquiring firm’s share price will move based on the long-term strategic and financial impact of the deal. If you trust the acquiring management to make good decisions, you may be pleased with the long-term impact of M&A. – Sean Brown, YCharts

6. Consider The Tax Benefits

When a stock is involved in an M&A deal, it is prudent to look at how you may benefit from this transaction from a tax perspective. Many only look at the potential gain or loss in value on paper, but perhaps there may be a tax play that will allow for tax loss harvesting. – Karla Dennis, Karla Dennis and Associates Inc.

7. Research The Entities Involved

Market volatility is a regular part of the investment landscape. Be patient, and conduct your due diligence. This should be any investor’s philosophy. If you immediately sell off your shares, you could lock in losses. On the other hand, going “all in” may not be the best move either. Being informed about the entities involved in the M&A will help you make sound decisions on how to proceed. – Justin Goodbread, WealthSource Partners, LLC

8. Look For The Synergy

Read press releases from both companies, including public filings. Is there natural alignment—a complementary view of products, customer segments or operating synergies? M&A can drive value for investors when done right. But if you don’t understand where the value or synergy is coming from, or if it doesn’t make sense for your overall portfolio objectives, it may be time to divest. – Michelle DeBella, JumpCloud

9. Tap Into Your Advisor’s Resources

Mergers can be very complicated. Therefore, it is important for an investor to meet with their financial advisor and make use of the institutional research that is available to the advisor. Retail investors trying to do it on their own are at a disadvantage unless they are experts in finance and know both companies—the one acquiring and the one being acquired—very well. – Aviva Pinto, Wealthspire Advisors

10. Place Trust In Corporate Management

Too often, news of M&A activity around a company is overblown one way or another. However, the ultimate goal is synergistic gains once the companies are on the other side of the transaction. If it’s not obvious where the synergies reside, that may signal a pause for thought, but I usually assume corporate management has a grand idea to benefit shareholders. Only hindsight will tell if it’s a good move. – Ivan Illan, Aligne Wealth Advisors Investment Management (AWAIM®)

11. Assess How The News Is Perceived By The Market

As a retail investor, you are the last to receive information, and the market has already adjusted for the information that’s being disseminated. Accordingly, you can assess how the market perceives the M&A news based on the rise or fall in the share price that day. You can then use this market guidance, along with your own research, to determine if you want to sell, hold or buy more stock. – Sean Frank, Cloud Equity Group

12. Determine If There’s Long-Term Value

Start with analyzing the strategic and cultural fit first—before conducting a financial analysis—to determine if there is long-term value. The value of assets may look good on the books, but if there is a cultural mismatch, they may not have enough practical worth. This can fail to meet the objective of creating a stronger company with combined resources and competitive advantage in the market. – Peter Goldstein, Exchange Listing LLC

Simonne Stigall

Next Post

Alibaba says 15% of China delivery areas disrupted during Singles Day

Tue Nov 29 , 2022
Alibaba broke tradition by not releasing total sales for its Singles’ Day shopping festival this year. Pictured here are advertisements for the festival in a Shanghai subway station on Nov. 10, 2022. Bloomberg | Bloomberg | Getty Images BEIJING — China’s Covid controls disrupted Alibaba‘s ability to deliver packages, the […]

You May Like