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I’m a firm believer that there is always a company, sector, or industry you can make money in any market. This is how I got introduced to arbitrage. I would examine portfolio managers and try and decipher their outperformance. I started to notice two trades, first that many of them were long-short, and second, they all performed some type of arbitrage. After I had this realization I began to put arbitrage to work in my account. I soon developed my own style of looking for arbitrage opportunities with short time periods until completion with small yields. I figured that if I can put money to work betting on companies with all the framework set up I could reduce risk while still having large returns as I could consistently roll the cash over. I considered this to be my cash management.
This brings me to Tufin Software Technologies (NYSE:TUFN). Tufin is an Israel-based “security policy management company specializing in the automation of security policy changes across hybrid platforms while improving security and compliance.” Tufin is currently in the process of being bought out by Turn/River Capital Management’s newest investment fund Turn/River Capital V. This will be the first purchase for the new 1.35 billion fund.
The Deal
On April 6th Turn/River entered into a definitive agreement to purchase Tufin for 570 million which would equal to $13 per share. The deal was initially expected to close in the 2Q 2022 contingent on approval by Tufin’s shareholders and receipt of regulatory approvals.
As it stands now the deal was approved by Tufin’s shareholders on June 7, 2022, and received regulatory approvals from Germany and France. The last remaining hurdles are clearing or expiration of the waiting period for foreign investment in Romania and the lapse of 30 days after the merger vote. This means the soonest the deal can go through is July 7th, and I expect the deal will go through around on or shortly after that date.
The Risk-Reward
Tufin has been trading around the 12.6 level all week so using this price we’ll calculate an expected return.
| Price | $12.60 |
| Closing Price | $13.00 |
| Spread | 3.08% |
| Expected time to Transaction | 13 Days |
| Annualized Return | 86.39% |
Your return may vary depending on your transaction fees and the amount you put into the transaction. There is a minimal chance the deal won’t go through but just using the assumption that this is Turn/River’s first purchase with their new fund you can assume they will look to push this through.
Conclusion
For a deal that has financing secured, shareholder approvals, all major regulators’ approvals, and looks to have less than 2 weeks, a 3.08% yield looks is a great risk to reward opportunity. For this reason, I rate Tufin a Strong Buy.
