M&A update: Fundamentals firmly intact

Merger arbitrage as a portfolio diversifier

Global merger and acquisition (M&A) activity extended its rebound into the final quarter of the year with a total of $3.5 trillion of deals announced in the first 10 months of 2025, a 38% increase versus the same period in 2024. Technology remains the largest contributor to global deal value as buyers pursue scale, AI capabilities, and cloud-adjacent infrastructure.

Financials, energy, and power, and healthcare also feature prominently as corporates and sponsors reposition portfolios for changes in interest rates, shifting tariff regimes, and the energy transition.

There continues to be a widening breadth of M&A activity across industries, in real assets. For example, Rayonier Inc. (NYSE: RYN) and PotlatchDeltic Corporation (NSD: PCH) agreed to an $8.2 billion all-stock merger that will create one of North America’s largest publicly listed timberland and wood-products platforms, combining roughly 4.2 million acres of timberlands with vertically integrated manufacturing.

Private equity sponsors and strategic healthcare buyers also featured prominently in late-October activity. A consortium led by Blackstone and TPG agreed to acquire women’s-health med-tech leader Hologic Inc (NSD: HOLX) in a $18.3 billion leveraged buyout, one of the largest healthcare take-privates of the year and a clear signal of sponsor appetite for high-quality, cash-generative assets.

Revival of U.S. bank M&A activity

The shift in the U.S. regulatory landscape under the new administration has meaningfully accelerated consolidation among regional and mid-sized banks. Trump-era regulators have moved quickly to clear bank mergers, with approval timelines compressing to roughly four months, the fastest pace in more than three decades, compared to nearly seven months under the prior administration.¹ Faster and more predictable reviews have removed one of the most persistent impediments to regional bank M&A, enabling a wave of strategically motivated combinations and scale-driven transactions across the industry.

For merger arbitrage investors, shortened durations directly translate into higher annualized returns as capital recycles more quickly through the portfolio, while reduced regulatory overhang lowers idiosyncratic risk and supports tighter deal spreads.

The combination of record or near-record mega-deal activity, a North American market that continues to lead globally, and a more predictable and accommodative regulatory environment, particularly for domestically focused transactions, will likely continue to generate a broad and diversified universe of opportunities. While headline volumes are skewed toward large-cap transactions, the underlying pipeline in small- and mid-cap deals remains active and, in our view, offers more attractive risk-adjusted spreads and less crowded positioning than the very large, highly syndicated transactions that dominate the news flow.

Outlook

The recent spike in volatility driven by the U.S. government shutdown, renewed uncertainty around whether the Federal Reserve will be in a position to cut rates in December, and an increasingly fragile geopolitical backdrop have added another layer of complexity to an already unsettled market environment.

Despite these crosscurrents, M&A markets have remained notably resilient. Dealmakers continue to press ahead, supported by strong corporate balance sheets, abundant access to financing, and a regulatory landscape that has been constructive for both strategic and financial buyers.

The steady cadence of new deal announcements, alongside healthy activity in small and mid-cap mergers, reinforces our view that the underlying fundamentals of the M&A cycle remain firmly intact. These conditions continue to provide a supportive backdrop for both merger arbitrage and SPAC arbitrage. The strategy’s event-driven nature and reliance on deal-specific milestones rather than broad market direction help insulate returns from the macroeconomic uncertainty dominating headlines.

The short duration of typical arbitrage positions allows capital to be recycled frequently, reducing exposure to prolonged market drawdowns while enabling us to take advantage of spreads that widen during periods of stress. Similarly, SPAC arbitrage continues to offer a compelling blend of principal protection and optionality.

With traditional asset classes exhibiting rising correlations and valuations in many areas of the market still elevated, arbitrage strategies remain a differentiated source of non-correlated and absolute returns. For investors seeking a portfolio diversifier with a strong emphasis on capital preservation, risk control, and consistency, merger and SPAC arbitrage continue to offer an appealing solution. We remain constructive on the opportunity set through the balance of the year and into 2026, supported by a deep pipeline of actionable deals and a market environment that continues to reward disciplined, event-driven investing.

Amar Pandya, CFA, is Portfolio Manager of the Pender Alternative Arbitrage Fund and the Pender Alternative Special Situations Fund at PenderFund Capital Management. Excerpted from the Pender Alternative Arbitrage Fund, Manager’s Commentary, October 2025. Used with permission.

Notes

1. Financial Times, November 2, 2025

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