How do stock prices move during an acquisition? Price fluctuations begin as soon as a deal is whispered: normally the target company’s share price immediately rises, and upon a formal offer the share price should jump near the price offered – but remember it’s not a done deal yet.

However, the acquirer’s share price will normally fall because it’s using up resources, taking on debt, or diluting its existing shareholders – along with taking on risk. That risk, and the amount shares might fall, can vary: should shareholders believe the company is overpaying or won’t be able to successfully integrate the target company, they may abandon ship before the deal sails through.

Big acquisitions can face uncertain regulatory approval. Investors have to judge whether a deal will be approved: betting the target’s shares will fall if the deal’s dead on arrival at the regulator’s office.

Can I make money trading on this? Maybe! But you’re up against some of the fiercest traders in the world: M&A arbitrageurs. They track every word both said and unsaid, have a scarily detailed feel for regulators’ whims, and can build algorithmic trading programs to react instantly to developments.

You can try playing with these guys, but good luck. You could bet on information the professionals are ignoring, if you have a particularly strong hunch – but that’s very risky and you might prefer the lottery. Loads of M&A “news” prematurely erupts in some of the lower-quality corners of the financial press. Journalists want their name on scoops and not every publication has the same rigorous standards of verification – which means that you might be trading on a deal that’s already dead.

The fun of M&A is to sit back and watch the events unfold: big deals can fundamentally reshape society. What would Facebook be had it not bought Instagram and WhatsApp? Knowing how these deals work and how it can help or hurt the companies involved lends you insight. You’ll notice acquisitions all around you – and you’re perfectly primed to judge what matters. ✨