Preparing Event Driven Investment Cases

---
name: preparing-event-driven-investment-cases
description: Structures event-driven investment recommendations with catalyst identification, timeline analysis, and risk/reward framework for portfolio allocation. Use when preparing event-driven cases, documenting catalyst theses, or presenting special situation opportunities.
tags:
  - preparation
  - activist-and-event-driven-investing
  - risk
  - investment
metadata:
  author: casemark
  practice_areas:
    - Activist Investing
    - Event-Driven Strategy
    - Special Situations
  document_types:
    - Preparation Document
  skill_modes:
    - Preparation
---
# 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