bloggingbuyouts

When a new investor first studies merger arbitrage, the concept seems incredible -- the ability to make almost guaranteed profits, especially because it seems that deals are pulled or rejected ever so rarely. But as this new investor begins following the market more, he quickly learns that deals are in fact pulled. Recently, we saw the firms interested in purchasing SLM Corp. (Sallie Mae) (NYSE: SLM) pull their deal. As you can see from the chart on the right, this killed the arbs involved in the deal.

I don't think this is going to be the last time that a potential private equity deal is pulled, much to the disappointment of arbs. As I've been covering on BloggingBuyouts, I think the credit situation in the United States is quickly turning sour. Many professionals in the fixed income space who I talk to constantly talk about not being paid enough interest to justify the risks that they are taking. As a result, I believe private equity firms are going to have much more trouble in borrowing the money they need to continue their leveraged buyouts. I think arbs are going to face more pain in the future.