A special situation in finance is an atypical event which has the high potential to alter the future course of a business, materially impacting the company's value. The connotation of the event may be both positive (for example, merger or acquisition) and negative (conflict, distress, etc.) The notion also covers corporate
restructuring
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Other reasons ...
and corporate transactions, such as
spin-offs,
share repurchase
Share repurchase, also known as share buyback or stock buyback, is the re-acquisition by a company of its own shares. It represents an alternate and more flexible way (relative to dividends) of returning money to shareholders. When used in coord ...
s,
security
Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...
issuance/
repurchase, asset sales, or other catalyst-oriented situations. Further, a shareholders conflict is also considered a special situation.
Seeking for and investing in special situations is a strategy pursued by a number of investors. To take advantage of a special situation, a hedge fund manager must identify an upcoming event that will increase or decrease the value of the company's equity and equity-related instruments.
Definition
There is also a definition of special situation by
Benjamin Graham
Benjamin Graham (; né Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American economist, professor and investor. He is widely known as the "father of value investing", and wrote two of the founding texts in neoclassical inves ...
:
Classes of special situations
In his well-known book ''
Security Analysis
Security analysis is the analysis of tradeable financial instruments called securities. It deals with finding the proper value of individual securities (i.e., stocks and bonds). These are usually classified into debt securities, equities, or som ...
'',
Benjamin Graham
Benjamin Graham (; né Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American economist, professor and investor. He is widely known as the "father of value investing", and wrote two of the founding texts in neoclassical inves ...
divides special situations into six classes:
Benjamin Graham
Benjamin Graham (; né Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American economist, professor and investor. He is widely known as the "father of value investing", and wrote two of the founding texts in neoclassical inves ...
"Special Situation Investing"
in ''Security Analysis
Security analysis is the analysis of tradeable financial instruments called securities. It deals with finding the proper value of individual securities (i.e., stocks and bonds). These are usually classified into debt securities, equities, or som ...
'', 1951 edition, pp 729-734.
*Class A: Standard arbitrages, based on a reorganization,
recapitalization
Recapitalization is a type of corporate reorganization involving substantial change in a company's capital structure. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa. ...
or merger plan
*Class B: Cash payout, in recapitalization or mergers
*Class C: Cash payments on sale or liquidation
*Class D: Litigated matters
*Class E: Public utility breakups
*Class F: Miscellaneous special situations
See also
*
Alternative investments
An alternative investment, also known as an alternative asset or alternative investment fund (AIF), is an investment in any asset class excluding stocks, bonds, and cash. The term is a relatively loose one and includes tangible assets such a ...
*
Bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
*
Default (finance)
In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A nati ...
*
Distressed securities Distressed securities are securities over companies or government entities that are experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distressed debt. Purchasing or holding ...
*
Going concern
A going concern is a business that is assumed will meet its financial obligations when they become due. It functions without the threat of liquidation for the foreseeable future, which is usually regarded as at least the next 12 months or the spec ...
References
External links
What's Special About Special Situations Fixed Income?Special Situation Survey by Forbes
* ttp://www.fund.com/investment-resources/trackers/ Fund.com Special Situations Tracker
{{Private equity and venture capital, state=collapsed
Hedge funds
Alternative investment management companies
Institutional investors