Merger Arbitrage - Black Knight - a Burry pick
At Autopilot we track stock buys from politicians and legendary investors.
Our favorite investor is Michael Burry. A deep value investor turned celebrity for calling the housing market bubble and made famous in The Big Short, Burry continues to generate excessive returns with contrarian styled stock picks.
Burry recently bought a company going through an acquisition. If the acquisition goes through, you will make close to 24%. If it is completed before year-end, that is close to a 50% annualized return.
If the merger doesn’t go through, there probably isn’t much downside. The stock is already trading near a five-year low. Valuation multiples are not that bad for a business generating 20% operating margins and double digit return on equity. And we have a floor valuation from an outside bidder that is likely to cap the valuation somewhere around the current price.
I like deals like this in a volatile market where the Federal Reserve continues to raise rates. Instead of taking market risk, you are taking deal risk. Downside is pretty low. And the upside is meaningful should the deal go through.
Let’s dig in.
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