casemark/preparing-event-driven-investment-cases

Preparing Event Driven Investment Cases

When To Use

• Building an investment case around a specific corporate event (merger, spin-off, restructuring, bankruptcy emergence, activist campaign, tender offer, rights offering)
• Documenting a catalyst thesis for investment committee presentation or LP communication
• Evaluating special situation opportunities where value realization depends on a discrete event rather than ongoing earnings growth
• Preparing position sizing rationale tied to event probability and timeline

Inputs To Gather

• Event identification: Type of event (M&A, spin-off, recap, litigation resolution, regulatory decision, activist engagement), current status, and key dates
• Security details: Target company ticker, current price, market cap, capital structure (debt tranches, preferred, warrants, converts)
• Source documents: Merger proxy/S-4, 13D/13F filings, court dockets (for bankruptcy/litigation), SEC filings, activist presentation decks
• Comparable precedents: Prior similar events in the sector — deal premiums, timelines, completion rates
• Market data: Implied probability from spread levels, options pricing, CDS spreads, borrow cost
• Stakeholder map: Board composition, shareholder register (institutional ownership, activist positions, insider holdings), regulatory bodies with jurisdiction

Workflow

1. Classify the event type and stage — Determine whether the situation is pre-announcement (anticipatory), announced (spread-based), or post-close (stub/reorganized equity). This drives the entire analytical framework.

2. Map the catalyst chain — Identify the sequence of events required for value realization. For each catalyst node, specify:

   • What must happen (e.g., shareholder vote, regulatory clearance, court confirmation)
   • Expected date or date range
   • Binary vs. continuous outcome
   • Probability estimate with rationale

3. Build the base-case valuation — Quantify the target price under the expected event outcome:

   • M&A: Deal terms, proration mechanics, collar/CVR structures, tax treatment
   • Spin-offs: Sum-of-parts using peer multiples for RemainCo and SpinCo; estimate index selling/buying pressure
   • Restructurings: Recovery analysis by tranche using enterprise value waterfall; fulcrum security identification
   • Activist situations: Quantify value uplift from proposed actions (asset sales, margin improvement, capital return) [VERIFY: activist's track record on comparable campaigns]

4. Define scenarios and assign probabilities — Construct at minimum:

   • Bull case: Event completes on favorable terms or activist achieves full platform
   • Base case: Event completes with expected friction/delay
   • Bear case: Event breaks or fails; quantify downside to unaffected price or liquidation value
   • Calculate probability-weighted expected return

5. Analyze the timeline and carry — Map expected holding period. Factor in:

   • Cost of carry (borrow cost for hedged positions, opportunity cost)
   • Annualized return at each scenario
   • Optionality value if timeline extends

6. Structure the risk/reward framework — Present:

   • Upside/downside ratio at current entry price
   • Maximum drawdown scenario and loss limit
   • Key risk factors: antitrust risk [VERIFY: HSR/regulatory jurisdiction], financing conditionality, MAC clause exposure, litigation risk, political/regulatory intervention
   • Hedging approach (pair trades, put spreads, CDS)

7. Draft the position sizing recommendation — Tie conviction level to allocation:

   • High conviction (>70% probability-weighted upside): full position
   • Moderate conviction: half position or express via options
   • Specify entry levels, averaging plan, and hard stop-loss

8. Compile the investment case memo — Assemble all sections into a structured document for IC review.

Output

The deliverable is a structured event-driven investment case containing:

• Executive summary: One-paragraph thesis with event type, expected return, timeline, and conviction level
• Situation overview: Event description, key parties, current status, and background
• Catalyst timeline: Visual or tabular timeline with dates, events, and probability gates
• Valuation analysis: Scenario table with target prices, probabilities, and weighted expected return
• Risk matrix: Key risks ranked by impact and likelihood, with mitigants and hedges
• Position recommendation: Entry price, size, instrument selection (equity, options, debt, CDS), and exit triggers
• Appendix: Source filing references, comparable event data, capital structure detail

Quality Checks

• Every probability estimate is accompanied by explicit rationale — no unsupported numbers
• Downside scenario is fully modeled (not just "we lose the spread") with specific unaffected price analysis
• Timeline accounts for realistic regulatory and legal process durations [VERIFY: jurisdiction-specific regulatory review periods]
• Capital structure is current and complete — confirm no missed converts, warrants, or preferred tranches
• Spread/return calculations are verified for deal terms (proration, elections, CVR assumptions, tax treatment)
• All filing dates and deadlines are cross-referenced against primary sources (SEC EDGAR, court dockets)
• Conflict check: confirm no restricted list issues or information barrier concerns before circulating
• Document distinguishes clearly between public information analysis and any material non-public information considerations