(HedgeCo.Net) A once-dormant trade is creeping back into the mainstream conversation: appraisal arbitrage—buying shares after an M&A announcement, then asking a court to determine a higher “fair value” than the deal price. Today, reporting highlights renewed hedge fund interest in this niche legal-financial crossover, particularly around contested deals. Bloomberg

What appraisal arbitrage is—and why it’s back

Appraisal arbitrage is not classic merger arb. Traditional merger arb aims to capture the spread between the trading price and the deal price, betting the deal closes. Appraisal arbitrage layers on a second bet: even if the deal closes, the buyer may have underpaid, and the court may award a higher valuation plus interest.

The strategy tends to revive when three conditions appear:

• High-profile take-privates where some shareholders argue price was “too cheap.”
• Legal clarity that makes appraisal petitions more predictable or financeable.
• Volatility in valuation multiples, which widens the gap between what buyers pay and what dissenters believe intrinsic value is.

A prominent example cited in related public court materials involves Silver Lake’s acquisition of Endeavor shares at a specified per-share price, which later became a subject of appraisal-related litigation context in Delaware. Delaware Courts

Why hedge funds like it

To hedge funds, appraisal arbitrage offers features that look attractive on paper:

• Low correlation to broad equity markets (returns depend on legal outcomes and valuation frameworks).
• Potential for asymmetric payoff (if the court awards higher value, upside may exceed a conventional merger spread).
• Interest mechanics in some jurisdictions/cases can add carry-like return potential.

But it’s also capital-intensive and patience-heavy. Positions can be locked up for long periods, legal fees can be material, and outcomes are uncertain. This makes it a better fit for certain event-driven funds than for fast-turnover multi-strats that optimize for rapid capital recycling.

What changes for dealmakers

If appraisal arbitrage activity grows, it can influence how sponsors and acquirers structure deals:

• Higher scrutiny on fairness opinions and process
• More defensive disclosures
• Possible shifts in premium levels to reduce litigation incentives

For the hedge fund world, the bigger implication is strategic: event-driven is no longer just “deals and restructurings.” It’s increasingly deals + courts + complex claims, where legal analysis becomes an edge.