Usually I am invested in several deals at once, each with a 2%-5% allocation. I personally like to diversify. There is no silver bullet as far as I know.. I guess it depends on how you perceive upside, downside, deal risk and estimated time to completion. For example, a few weeks ago Unilever
announced they were retiring their preference shares. Deal was brokered with the largest holder, deal size was very small for Unilever, they expected to complete the deal by year-end and I didn't see any regulatory problems. There was some selling pressure as shares surged ~200% because of the announcement. Preference shares were very illiquid but I managed to build an ~8% position at a ~4% spread. Excellent risk-adjusted IRR as far as I am concerned and I wouldn't have minded to own a bit more.
Sometimes microcap deals trade at largish (~4% - ~8%) spreads shortly before completion because of a combination of illiquidity, a lack of information, deal complexity and/or a significant rise following the announcement and because these deals are too small for almost everybody expect for PA's.
Questar was an example of such a deal earlier this year and at some point a ~13% position for me. In 2016
Kahala and
Glacier Water were similar deals in which I held even larger positions. In 2015
Safeway was, due to deal structure, imho a no-brainer large-cap deal in which I invested 25% of my funds because I didn't have the balls to go bigger.
In general, I like illiquidity, a lack of information and/or some uncertainty about the payout because these are risks I am willing to bear and other investors often can't or won't. I don't like regulatory risks as the only way I have to handicap these is a 'common sense' approach. I.e. in this case I think authorities aren't gonna give up easily a company building nuclear reactors, airports and the Vancouver Sky Train to a Chinese bidder. But other investors might be much better 'in the know' about what regulators think so I am not sure whether this is mispriced or not.
However, if the spread is large enough I sometimes give it a try.
CAB was an example earlier this year where I didn't see why regulators would block the deal. Still I only bought a very small position (<2%). I currently own a few shares of BRCD, similar situation.
