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Bumps are back, terminations low: Stars align for Merger Arbitrage

Published on
August 27, 2025
Read time
3 minute(s) read

Mergers and acquisitions are regaining momentum. With activist investors stepping up and key catalysts returning, the conditions are aligning for a materially stronger second half of the year and a meaningful acceleration in deal flow.
Carmignac Portfolio Merger Arbitrage Plus returned 10.94% since inception1, equating to an annualized performance of 4.62% with a volatility of 2%. Its equity beta of 0.03 underscores its minimal sensitivity to market movements, reinforcing its role as a robust, uncorrelated strategy within a diversified portfolio.

Buyers are getting their elbows out

While 2024 marked the beginning of an M&A recovery, post-election geopolitical volatility proved more intense than anticipated, disrupting corporate confidence and slowing deal activity. Yet 2025 has met those headwinds with resilience: year‑to‑date volumes are solid especially in Europe and Asia and, notably, much of this activity has been concentrated in the past few months, setting the stage for a dynamic and potentially rewarding second half of the year.

M&A is making headlines in the last months. Rail M&A conversation is a frequent topic lately and we saw Union Pacific’s planned $85 billion cash-and-stock takeover of Norfolk Southern; Baker Hughes is set to acquire Chart Industries in a $13.6 billion all-cash deal which is roughly a 30% premium to earlier proposal by Flowserve; and Palo Alto Networks announced a rare public-to-public cybersecurity transaction valuing CyberArk at more than $20 billion.

July in particular, saw a surge in public M&A activity, with 11 announced deals exceeding $1 billion, totalling approximately $165 billion in deal volume, the highest monthly level in recent years. We also saw a return of larger-scale public M&A with 4 deals of $10bn or greater during the month.

August was anything but quiet for dealmakers — Keurig Dr Pepper’s $18 billion bid for Dutch giant JDE Peet’s signals not only the birth of a new coffee powerhouse, but also underscores the continued momentum of cross-border M&A.
Mega-deal momentum and sector breadth are clearly back offering fertile ground for merger-arbitrage investors. Even more encouragingly, market “animal spirits” are returning, reinforcing the outlook for attractive returns.

COMPETING BIDS PICKING UP IN 2025

Source: UBS Special Sits, Bloomberg as of 30/06/2025. Mergers with an equity value in excess of $400 million involving publicly-traded targets in the US. Competing bid rate is calculated as the number competing bids in a given year relative to the number of deals announced in that year.

Indeed, the competitive dynamics in the M&A market have intensified. Data show a sharp rise in bidding wars, with strategic acquirers and especially private‑equity sponsors demonstrating their pricing power through sweetened deals and more favourable terms. Historically, these high-competition environments have been where merger arbitrage strategies deliver their strongest alpha, making this an especially opportune moment.

The most painful for a merger arbitrage portfolio are the terminated deals, so this year’s sharp drop in break-ups is a welcome tailwind. Several shifts are driving the improvement: the new U.S. administration now leans toward negotiated remedies rather than outright blocks, giving investors clearer regulatory visibility; meanwhile, easing tariff pressures, softer inflation and falling policy rates have removed much of the macro uncertainty that previously derailed transactions.

Importantly, the portfolio management team has a consistent and proven 20-year track record built on a robust qualitative and quantitative investment process, has enabled us to reduce the market failure rate by 50%. Together these factors have materially lowered deal‑termination risk and improved the strategy’s reward profile.

TERMINATION OF US STRATEGIC DEALS DOWN IN 2025

Source: UBS Special Sits, Bloomberg. Data as of 30/06/2025. Mergers with an equity value in excess of $400 million involving publicly-traded targets in the US. Competing bid rate is calculated as the number competing bids in a given year relative to the number of deals announced in that year.

More opportunities on the horizon

Amid volatility and equity dislocations, opportunities arise. As the M&A landscape continues to regain momentum, the availability of sponsor dry powder coupled with rising activism and geographic valuation gaps is expected to catalyse deal activity and allow to cross-border deals.
At the same time, merger arbitrage investors benefit from improved remuneration for spreads, significantly lower termination risk, greater regulatory visibility, and a backdrop of falling interest rates, all of which enhance the strategy’s risk‑adjusted return profile.
Goldman Sachs reported in early August 2025 that annualized merger arbitrage spreads in the US had a median2 of 7.7% based exclusively on announced deals. While spreads briefly widened during April’s tariff‑related stress, they have since normalised, returning to levels broadly in line with historical averages. This normalization, combined with strong deal momentum, underpins a constructive outlook for merger arbitrage strategies.

Carmignac Portfolio Merger Arbitrage Plus (CMAP) (I EUR share class) is in positive territory with a performance of +3.71% year-to-date.3 Investing in officially announced deals allows us to navigate the market and seek returns uncorrelated to market moves. Thanks to a diversified portfolio, the Fund recorded a maximum drawdown of just -1.35%, which was fully recovered within 16 days, underscoring its ability to provide decorrelated returns during periods of heightened volatility.

Strategy reminder

STRATEGYOfficially Announced Deals + Non-Binding Proposals + Post Offer
INVESTMENT UNIVERSEM&A deals in developed countries
PORTFOLIO DIVERSIFICATION40 to 60 positions
LONG EXPOSURE (IN % OF NAV)0% to 250%
SHORT EXPOSURE (IN % OF NAV)0% to -250%
GROSS EXPOSURE (IN % OF NAV)0% to 500%
NET EXPOSURE (IN % OF NAV)0% to 250%
MAX DRAWDOWNS PER POSITIONAll deals: 250bps
RISK/RETURN PROFILE2 – 4% volatility; Target Return – Ester + 400bps
LIQUIDITYDaily
ESG INTEGRATIONSFDR Art. 8
LEGAL STRUCTURELuxembourg-based UCITS
AUM€222 million
Source: Carmignac, 31/07/2025. These investment guidelines are internal guidelines which are subject to changes at any time and without any notice. For complete investment rules and limits, please refer to the fund's prospectus.

1Data as of 31/07/2025. The Fund has been launched on 14/04/2023.
2Median: half the deals that trade at a tighter spread and half at a wider one.
3Carmignac. Data as of 31/07/2025.

Carmignac Portfolio Merger Arbitrage Plus

An active absolute return strategy focusing on merger arbitrage opportunities
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Carmignac Portfolio Merger Arbitrage Plus I EUR Acc

ISIN: LU2585801330
Recommended minimum investment horizon
3 years
Risk indicator*
2/7
SFDR - Fund Classification**
Article 8

*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **Sustainable Finance Disclosure Regulation (SFDR) 2019/2088. The SFDR classification of the Funds may change over time.

Main risks of the fund

Equity: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization.
Arbitrage: Arbitrage seeks to benefit from such price differences (e.g. in markets, sectors, securities, currencies). If arbitrage performs unfavorably, an investment may lose its value and generate a loss for the Sub-Fund.
Risk associated with the Long/Short Strategy: This risk is linked to long and/or short positions designed to adjust net market exposure. The Fund may suffer high losses if its long and short positions undergo simultaneous unfavourable development in opposite directions.
Liquidity: Temporary market distortions may have an impact on the pricing conditions under which the Fund might be caused to liquidate, initiate or modify its positions.
The Fund presents a risk of loss of capital. Please refer to the Fund’s prospectus to view the exhaustive list of risks.

Fees

ISIN: LU2585801330
Entry costs
We do not charge an entry fee. 
Exit costs
We do not charge an exit fee for this product.
Management fees and other administrative or operating costs
1,12 % of the value of your investment per year. This estimate is based on actual costs over the past year.
Performance fees
20,00 % max. of the outperformance if the performance is positive and the net asset value exceeds the high-water mark. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
Transaction Cost
0,23 % of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.

Performance

ISIN: LU2585801330
Carmignac Portfolio Merger Arbitrage Plus+3,7+3,7+3,2
Carmignac Portfolio Merger Arbitrage Plus+5,2 %-+4,6 %

Source: Carmignac at Jul 31, 2025.
Date of 1st NAV : 14/04/2023.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The Fund presents a risk of loss of capital.
The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.

Reference Indicator: -

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Marketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.

This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice. They are expressed as of the date of writing and are derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Carmignac, its officers, employees or agents.

Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.

Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The reference to a ranking or prize, is no guarantee of the future results of the UCIS or the manager.

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The Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com/en, or upon request to the Management Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. The French investment funds (fonds communs de placement or FCP) are common funds in contractual form conforming to the UCITS or AIFM Directive under French law.

  • In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.com/en-gb, or upon request to the Management Company, or for the French Funds, at the offices of the acilities Agent, Carmignac UK Ltd, 2 Carlton House Terrace, London, SW1Y 5AF. This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd. FP Carmignac ICVC (the “Company”) is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the FCA with effect from 4 April 2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the “ACD”) of the Company and is authorised and regulated by the FCA. Registered Office: Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1 3BY, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company. Carmignac UK Ltd (Registered in England and Wales with number 14162894) has been appointed as a sub-Investment Manager of the Company and is authorised and regulated by the Financial Conduct Authority with FRN:984288.

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  • In Belgium: This document is intended for professional clients. This content has not been validated by FSMA. The decision to invest in the promoted fund should take into account all its characteristics or objectives as described in its prospectus. This communication is published by Carmignac Gestion S.A., a portfolio management company approved by the Autorité des Marchés Financiers (AMF) in France, and its Luxembourg subsidiary Carmignac Gestion Luxembourg, S.A., an investment fund management company approved by the Commission de Surveillance du Secteur Financier (CSSF). “Carmignac” is a registered trademark. “Investing in your Interest” is a slogan associated with the Carmignac trademark. This document does not constitute advice on any investment or arbitrage of transferable securities or any other asset management or investment product or service. The information and opinions contained in this document do not take into account investors’ specific individual circumstances and must never be interpreted as legal, tax or investment advice. The information contained in this document may be partial and could be changed without notice. This document may not be reproduced in whole or in part without prior authorisation. The risks and fees are described in the KID (Key Information Document). The prospectus, KID, the net asset-values and the latest (semi-) annual management report may be obtained, free of charge, in French or in Dutch, from the management company (tel. +352 46 70 60 1) or by consulting its website or www.fundinfo.com. These materials may also be obtained from Caceis Belgium S.A., the financial service provider in Belgium, at the following address: avenue du port, 86c b320, B-1000 Brussels. The Fund (fonds commun de placement or FCP) is a common fund in contractual form conforming to the UCITS Directive under French law. Access to the Fund may be subject to restrictions regarding certain persons or countries. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA. In case of subscription to a fund subject to Article 19bis of the Belgian Income Tax Code (CIR92), the investor will have to pay, upon redemption of his or her shares, a withholding tax of 30% on the income (in the form of interest, or capital gains or losses) derived from the return on assets invested in debt claims. Distributions are subject to withholding tax of 30% without income distinction. In case of subscription in a French investment fund (fonds commun de placement or FCP), you must declare on tax form, each year, the share of the dividends (and interest, if applicable) received by the Fund. Any complaint may be referred to complaints@carmignac.com or CARMIGNAC GESTION - Compliance and Internal Controls - 24 place Vendôme Paris France or on the website www.ombudsfin.be.

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For Carmignac Portfolio Long-Short European Equities: Carmignac Gestion Luxembourg SA in its capacity as the Management Company for Carmignac Portfolio, has delegated the investment management of this Sub-Fund to White Creek Capital LLP (Registered in England and Wales with number OCC447169) from 2nd May 2024. White Creek Capital LLP is authorised and regulated by the Financial Conduct Authority with FRN : 998349.

Carmignac Private Evergreen refers to the Private Evergreen sub-fund of the SICAV Carmignac S.A. SICAV – PART II UCI, registered with the Luxembourg RCS under number B285278.