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3 Ways to Play the M&A Wave

Complex strategies like merger arbitrage can lead to nice returns

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Deal185Google (GOOG) bought Waze. AstraZeneca (AZN) acquired Pearl Therapeutics. IHS (IHS) snapped up Carfax operator R.L. Polk.

That’s right: At least for this week, Merger Monday was back.

Granted, we might just be seeing a false restart of M&A activity after about a month of rest — and that would be especially likely if the market’s recent volatility sticks around for a while. Still, there are some drivers that could be reviving Wall Street wheeling and dealing: Corporate America is flush with cash and is desperately seeking ways to boost growth, and the U.S. economy appears to be on firmer footing, which is conducive to dealmaking.

Of course, while investors’ first thought might be to try to pick and choose companies they think might get bought out, a couple other options might be more appealing.

For instance, there are merger funds, which typically use a strategy known as arbitrage, where a portfolio manager trades shares in both buyer and buyout target — a clever way to profit from the current stock price and the bid price of the target. While some deals do fall apart, it’s a rare occurrence, making this strategy fairly low-risk. But fair warning: You trade potential for big pops in exchange for this security.

With that in mind, here are three ways to play M&A right now:

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