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Seven Tips To Protect Investors During A Stock Merger And Acquisition Deal

Expert Panel
POST WRITTEN BY
Forbes Finance Council
This article is more than 6 years old.

You or your client have invested in stock and now there's word of a merger and acquisition. Naturally, concern sets in -- and for good reason. Investopedia estimates that only 50% of mergers and acquisitions have a chance of succeeding. This 50:50 success rate can create some panic as you try to decide what the next, most logical move should be to protect your interests.

Instead of crawling the walls with panic, consider this advice from leading members of the Forbes Finance Council:

Photos courtesy of Forbes Finance Council members

1. Check Their Website For Info

It would benefit you to go to the company website and spend time listening to the latest executive conference call regarding the acquisition. Remember, you don't own a stock, you own a piece of a business. If you prefer to invest this way, then make sure you understand the new business model. The inside (legal) information on the latest calls provides a basis for deciding if you remain an owner. - Darryl Lyons, PAX Financial Group LLC

2. Consider Arbitrage

There are different arbitrage strategies depending on your goals. You could have a long only strategy, or you could try a long and short strategy. This can help you profit from the M&A deal. - Ismael Wrixen, FE International

3. Avoid Knee-Jerk Reactions

If you're invested in a well-diversified portfolio, your next step should probably be no step. By the time you read about an M&A in the news, larger and quicker investors have already adjusted for the price. And when your stock is already rising or falling, you'll probably buy more when it's at a temporary high, or sell at a low. Knee-jerk reactivity to the news isn't a smart long-term strategy. - Elle Kaplan, LexION Capital

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

4. Do Your Research

When the deal is announced, it’s important for the investor to understand the buyout circumstances as much possible. The investor should get to know the nature of the merger, key information concerning the other company involved, the types of benefits that shareholders are receiving, which company is in control of the deal and any other relevant financial and non-financial considerations. - Ibrahim AlHusseini, The Husseini Group

5. Check Your Risk Tolerance And Allocations

When something out of the ordinary comes up, check your risk tolerance and allocation. If everything is good there, then you can react with a buy, hold or sell. Sometimes there's a run-up and it's a great time to cash in. However, sometimes there's a fall. Either way, if your portfolio is in balance with your risk tolerance, you'll be better equipped to make a decision that's right for you. - Justin Goodbread, Heritage Investors

6. Double-Check The Consideration Form

Depending on the form of consideration, you'll have to make a few decisions. If the deal is a stock deal, then you'll have to decide whether or not you want the own the shares of the acquirer. This requires you to study up on the acquirer, understand its story and fundamentals, trading, etc. If the deal is a cash deal, be sure to check any tax consequences of receiving cash for your shares. - Jason Lee, DailyPay

7. Stick With The Fundamentals

It's important to consider which side of the M&A deal your stock falls in. If you own stock in a company that's being acquired, I would advise you to sell it -- the stock you own will rarely go up in price beyond what the acquiring company paid for it. So take your gains and reinvest. - Mahati Mukkamala, Klaviyo