Tag: Hedge Fund Canada

The only constant is change.

Maxam Diversified Strategies – Q3 2025 Commentary

Dear fellow investors,

The Maxam Diversified Strategies Fund¹ (the “Fund”) gained +7.7% in the third quarter of 2025. Over the last five years the Fund has delivered an annualized return of +14.1%.

Smoother ride.

In stark contrast to the weak start to the year – punctuated by the sharp tariff-induced selloff in early April – the third quarter of 2025 was largely a smooth ride higher for equity markets.

Fiscal and monetary stimulus continue to be broadly supportive, albeit against a backdrop of geopolitical tensions. Canada’s equity bellwether, the S&P/TSX Composite Index, was taken higher by surging gold stocks and strength in banks. South of the border, U.S. equities continued to be propelled higher by the artificial intelligence theme, and more recently by improving sentiment for expectations of interest rate cuts that investors hope won’t rekindle inflation.

We are mindful of the concentration risk that bellwether equity indices have in U.S. mega caps – which trade at rich valuations. It is possible for a company to be both a wonderful business and a poor go-forward investment at the same time.

Our focus remains on investing in select companies and idiosyncratic situations where we believe we have found attractive fundamentals and/or a specific catalyst or event that will drive value.

Q3 positions and activity recap.

While general market volatility in the third quarter was lower than experienced in the first half of the year, there were company-specific events and volatility that we were able to take advantage of.

Notable positive contributors to performance in the third quarter included: Kraken Robotics, Brookfield Business Partners, Information Services Group, Exchange Income Corp, and our basket of gold companies.

Kraken Robotics is a marine-focused technology company that designs and develops advanced sonar and optical sensors, and robotic systems used in military and commercial applications. This Canadian company based in Newfoundland continued to capture the attention of investors with its fast growth and advanced defense-tech offerings. While we have prudently trimmed our exposure following the company’s rapid share price increase, the story remains catalyst-rich and on-theme in the current market environment.

Higher up the market cap spectrum, Brookfield Business Partners – owner of high-quality industrial, infrastructure, and business services companies – continued to narrow the discount that it trades at relative to net asset value, aided by solid financial results, a fertile M&A environment, and improving investor sentiment regarding easing macro concerns.

Shares of Information Services Corp. moved higher during the third quarter after the company announced that they had initiated a strategic review with the intention of maximizing value for all shareholders. Crown Investments Corporation of Saskatchewan, the company’s largest shareholder, said they would take provincial economic and employment considerations into account when reviewing any proposals.

At the other end of the ledger, detractors from performance during the third quarter included Sylogist, Sangoma Technologies, TMX Group, McCoy Global, and MDA Space.

Sylogist and Sangoma have both suffered from growth that hasn’t met expectations of late. We reduced our position in Sylogist before its recent share price decline and note that there is now an activist investor pushing for changes.

We used the decline in the share prices of McCoy Global and MDA Space to opportunistically add to our positions in each company at valuations that we deem attractive, and in advance of future expected catalysts.

During the quarter we exited the Fund’s positions in Ag Growth International, Blackline Safety, Kinaxis, and Dye & Durham.

While Ag Growth continues to trade at an attractive valuation, we are of the view that its end markets may take longer to recover and grow. Blackline Safety was a solid performing investment for the Fund over the last few years, but we viewed the valuation as full while the company transitions through a product update cycle.

We exited our small position in Dye & Durham during the quarter, despite only recently investing in the company – we’d considered it a special situation investment with shareholders and its founders urging a sale. However, when the company surprised the market with news that they would miss filing their audited financial statements on time, we quickly sold our position – taking a small loss and avoiding the stock’s subsequent decline.

Speaking of M&A…

The Fund benefited from two of its holdings reaching agreements to be acquired during the quarter. First it was Dream Residential Real Estate Investment Trust announcing an agreement to sell to Morgan Properties for $10.80 cash per share following a strategic review. And then closer to the end of the quarter, Quorum Information Services announced that it had entered into a definitive agreement to be acquired by Valsoft Corporation for $0.80 cash per share.

We follow the M&A market very closely for the Maxam Arbitrage Fund – and note that prevailing market conditions continue to be supportive of deal formation. A more friendly regulatory environment, solid corporate balance sheets, growing profits, and higher stock prices are providing executives with the confidence to make acquisitions.

With quality small and mid-cap companies trading at more reasonable valuations than large caps, we expect that acquirors will continue to be active in this segment of the market – and we would not be surprised to see more of our holdings targeted.

The only constant is change.

We live in a world of change – and it seems like particularly intense change these days. From geopolitical tensions and shifting fiscal and monetary policy, to tariffs, trade deals (or not) and of course artificial intelligence rewiring everything sucking up all the capex.

It is prudent to be mindful of the risks that come with change, but also attentive to the opportunities. Without change the investment landscape would be a lot less prospective – and a lot more boring.

Market volatility, economic uncertainty, geopolitical tensions, technological changes and countless other factors expose mispricings – creating compelling entry points and unveiling new opportunities.

In our view this environment of change is fertile with investment opportunity – especially beneath the surface of the index heavyweights – and is well-suited to our flexible approach and value-oriented style.

Please get in touch if you have any questions..

5 years in! A milestone for Maxam Arbitrage Fund.

Maxam Arbitrage Fund – Q3 2025 Commentary

Dear fellow investors,

Maxam Arbitrage Fund¹ gained +1.04% in the third quarter to finish the first nine months of 2025 up +5.33%. Fund performance for the trailing 12 months was +6.94%.

5 years in!

We are pleased to highlight that the Maxam Arbitrage Fund achieved its 5-year track record milestone on September 30^th.

Over the Fund’s first five years we have delivered steady returns with low correlation to traditional equities and bonds, along with a very low volatility profile.

Reviewing Q3.

Performance in the third quarter was driven by 27 successful deal completions, including one price bump, and no deal breaks. Our SPAC positions also benefitted from increased activity and interest in the space, in addition to the usual growth of cash held in-trust.

The market environment continues to be highly conducive to new deal formation. We added 94 new definitive transactions to our database in the third quarter, 27% more than in Q2.

A more friendly regulatory environment, solid corporate balance sheets, growing profits, and higher stock prices are providing executives with the confidence to make acquisitions. And small-cap company valuations are compelling relative to large and mega caps, providing an attractive opportunity set for accretive M&A. Over half of the new deals announced in the third quarter targeted companies under $1 billion in market capitalization – a segment of the market we continue to be active in.

During the quarter we initiated 26 new merger arbitrage positions in the Fund and, as mentioned above, had 27 successful deal completions and zero breaks.

We won’t list them all, but here are a few of the deals that we owned which successfully closed during the quarter: Enstar Group, Servotronics, Juniper Networks, Wesdome Gold Mines, Ceres Global Ag, Radius Recycling, Chevron, Innergex Renewable Energy, SigmaTron International, Sierra Metals, Synex Renewable Energy, CI Financial, Keg Royalties, and DallasNews.

At the end of the third quarter the fund was diversified across 35 merger arbitrage positions.

Barbarians at the Gate.

It was always going to be tough to match the four deal-price bumps that we benefited from in the second quarter, but we did have one takeover battle in the third quarter that is worth mentioning.

In early July, Hearst Communications announced that they had reached an agreement to acquire DallasNews for cash consideration of $14.00 per share. We added a position in DallasNews shortly after the announcement, at an attractive arbitrage spread, in what we thought would be a straightforward deal.

Approximately two weeks after announcing the deal to sell to Hearst, DallasNews received a competing acquisition proposal from MNG Enterprises/Alden Global (“MNG”), who owned 9.9% of the company, for $16.50 per share.

In response to the higher offer, the ex-Chairman of DallasNews – who notably controlled enough of the company’s Class B voting shares to block the deal – made his position clear, stating: “There is no circumstance under which I will change my mind [and sell to MNG], now or in the future.”

Talk about undermining the DallasNews board’s negotiating leverage!

Hearst did, begrudgingly we assume, agree to amend their purchase price from $14.00 to $15.00. And then it got more interesting.

MNG continued to raise the stakes, upping their offer to $17.50, and then to $18.50, and then finally to $20.00 per share. Nevertheless, DallasNews’ ex-Chairman continued to support the financially inferior bid, believing that Hearst would be a better steward of the company that his great-grandfather founded.

Hearst, sensing that even with the ex-chairman’s voting support that they may not win the minority shareholder vote required to complete the acquisition, amended their offer to a ‘final’ price of $16.50. In the end, minority shareholders voted to accept the certainty of Hearst’s deal over a potentially scuttled transaction.

Overall, we were happy to have our position in DallasNews conclude better than we’d first expected, but certainly a little disappointed that there was more money on offer. Reach out if you’d like to hear more about this deal and how we managed our risk exposure.

Looking way up at the other end of the market cap spectrum, two U.S. private equity firms – Silver Lake Management and Affinity Partners – teamed up with Saudi Arabia’s Public Investment Fund to purchase gaming giant Electronic Arts (“EA”) for $210 cash per share, or about $55 billion.

JPMorgan Chase & Co is leading a consortium of lenders who have agreed to provide $20 billion of debt financing for the EA transaction, making it the largest leveraged buyout on record – surpassing other mega-deals such as TXU, HCA Healthcare, Heinz, Equity Office Properties, and the late 1980s buyout of RJR Nabisco by KKR.

The leveraged buyout of RJR Nabisco, a rapid-fire bidding war that began with a management-led offer at $75 per share and ended with KKR’s successful bid at $109 per share, became emblematic of the 1980s junk-bond fueled LBO wave.

There are some key differences between these two mega-deals. The RJR Nabisco deal structure was much more heavily levered with over $22 billion of debt vs $7.4 billion of equity, a 3:1 ratio. EA on the other hand is more equity heavy with $55 billion of equity to $20 billion of debt, a 0.4:1 ratio. And today’s debt markets for financing deals are generally deeper and more robust with risk typically shared amongst multiple lenders.

The RJR Nabisco deal had its fair share of drama with multiple bids and unique personalities involved – which were well-chronicled in the book and HBO film Barbarians at the Gate². We don’t expect the same drama to ensue with the EA deal, although Donald Trump’s son-in-law Jared Kushner is the founder of buyout consortium member Affinity Partners.

From an arbitrageur’s perspective, we are pleased to see everything from small-cap deals like DallasNews to mega-cap deals like Electronic Arts – expanding our opportunity set and enabling us to construct an attractive and well-diversified portfolio.

SPACs – steady as she goes³.

SPAC IPOs kept sailing forward at a steady clip in the third quarter. While not quite as robust as the $10 billion raised in Q2, the third quarter still brought a very healthy $8 billion in new issuance to the market across 35 IPOs.

With one quarter still to go in the year total issuance has already doubled the amount set in all of 2024. The recent revival of SPAC IPOs is a welcome development for arbitrageurs as it should provide a solid opportunity set to deploy capital into over the next few years.

Similar to the prior quarter, IPOs again outpaced deal completions and liquidations, lifting the total universe to 246 listed SPACs – up 20 in the quarter. Total capital sitting in SPAC trust accounts – and growing via accruing interest – rose by $6 billion to approximately $31 billion. That’s more than double the amount held in trusts at the beginning of 2025.

The number of SPACs searching for a qualifying transaction totaled 152 at quarter end, while 94 have already announced deals and are working toward completion. On the latter, new deal announcements saw an uptick to 35 in Q3, versus 16 in Q2, and 12 in Q1 respectively. Of note, there seems to be more excitement – or speculative capital shall we say – around certain announced deals, more so than we’ve witnessed in several years.

The core focus of our SPAC arbitrage strategy is to protect and grow capital through detailed modelling of estimated trust values and opportunistic trading when volatility creates dislocations. That said, the embedded call option in SPACs can periodically deliver additional upside.

Case in point: in Q3 the Fund held a few positions that benefited from positively received deal announcements, pushing those SPACs to trade above their cash held in-trust. Two notable positions included Spring Valley Acquisition Corp. II’s proposed merger with uranium miner Eagle Energy Metals, and Willow Lane Acquisition Corp.’s combination with digital-infrastructure firm Boost Run.

Setting aside potential optionality, the median IRR across the SPAC universe was just over 4%, roughly in line with Q2 – and we are finding opportunities at higher IRRs.

The Fund held 89 SPACs at the end of the third quarter – more diversified than usual – which we view as appropriate considering the burgeoning positive sentiment towards new deal announcements. It is difficult to gauge which particular SPACs might catch a gust of excitement, so we think it is sensible to cast the net a bit wider.

Resiliency through periods of uncertainty.

We are pleased to have delivered on the Fund’s objective over its first five years – generating consistent returns regardless of the direction of the market by investing in announced specific and definitive events and transactions.

Uniquely, arbitrage returns are not driven by valuations, earnings beats or misses, credit rating changes, management guidance, or investor emotions. In a market environment that can seemingly shift on a headline, Maxam Arbitrage Fund seems like a good strategy to have in the mix.

While we’ve always had ample deal flow to construct a well-diversified arbitrage portfolio, the current opportunity set of transactions is deep, and prevailing market conditions are supportive of new deal formation.

We look forward to applying our disciplined risk framework to the arbitrage opportunity set over the next five years and beyond.

Thank you for your trust and confidence. Please don’t hesitate to reach out with any questions.

¹ Maxam Arbitrage Fund, Class F, net of fees and expenses. Inception date October 1, 2020. Please contact us regarding other series of fund units or visit our website www.maxamcm.com

² Barbarians at the Gate. Worth a read and/or a watch: https://en.wikipedia.org/wiki/Barbarians_at_the_Gate.

³ SPAC data and statistics shared below is from spacinsider.com and the Maxam Capital Management database.

Maxam Capital Management Ltd. is the manager for the Maxam Arbitrage Fund. Important information about the Fund is contained in the Fund’s Simplified Prospectus, which should be read before investing. This presentation is neither an offer to sell securities nor a solicitation to sell securities. Disclosed historical returns for periods greater than one year are annualized unless otherwise noted and are net of fees and expenses. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Simplified Prospectus before investing. Any indicated rates of return are the historical annual total returns including changes in value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. This document is not intended to provide legal, accounting, tax, or investment advice. Please consult an investment advisor and read the prospectus for the Maxam Arbitrage Fund prior to investing. Please contact us for more information at: (604) 685-0201 info@maxamcm.com www.maxamcm.com

Expecting the unexpected.

Maxam Diversified Strategies – Q2 2025 Commentary

Dear fellow investors,

The Maxam Diversified Strategies Fund¹ (the “Fund”) gained +9.9% in the second quarter of 2025. Over the last five years the Fund has delivered an annualized return of +14.7%.

Wild ride.

The second quarter began on a gloomy note in early April when U.S. President Trump’s aggressive trade tariff announcements quickly injected significant uncertainty and volatility into financial markets, sending securities prices broadly lower. Then, approximately one week after pronouncing the “Liberation Day” tariffs, Trump declared a 90-day pause that marked the beginning of a turnaround for markets.

In addition to trade tensions, equity and bond markets were also challenged by escalating geopolitical conflicts and fiscal deficit concerns during the second quarter. However, improving trade negotiations, resilient economic data, and positive corporate earnings revisions not only calmed investor fears but enabled equities to rally and bond markets to stabilize.

Another recent narrative supporting investor confidence is the so-called ‘TACO’ trade. This is the notion that Trump cares more about market performance than he admits – therefore Trump Always Chickens Out when his rhetoric and policies are met with rising long bond yields and tumbling equity markets.

The current U.S. administration is now clearly focused on a growth-first agenda – perhaps throwing caution to the wind with the inflationary pressures that may ensue. Overall, this is a supportive environment for equities. However, we are mindful that while some of the aforementioned challenges have faded into the background, they have not vanished.

Investors should continue to expect volatility. At the very least we expect our newsfeed to remain eye-catching and sentiment shifting. Like this beauty from earlier this month²:

We will continue to look through the noise and endeavour to use market volatility to our advantage.

Positions and activity recap.

Market and security-specific volatility in the second quarter provided us with the opportunity to add to some of our higher conviction positions – especially early in the quarter. And as the quarter progressed, Fund performance benefited from strong breadth across the portfolio.

Notable positive contributors to performance included: Firan Technology Group, MDA Space, Information Services Group, Kraken Robotics, Itafos, Dexterra Group and Exchange Income Corp.

Firan Technology Group was the Fund’s top contributor to performance in the quarter. This manufacturer and provider of electronic products, technology, and subsystems to the aerospace and defense industries continues to benefit from strong multi-year demand across its key end markets.

Firan enjoys a unique competitive position with strong barriers to entry for its products and serves its customers from 11 manufacturing facilities across three different countries. In addition to strong end-market demand, Firan is establishing another facility in India to capitalize on regional demand and may seek to expand its product offering through strategic M&A. Despite recent strong share price performance, Firan continues to trade at an attractive and discounted multiple in our view – and it remains one of our largest positions.

Market volatility also afforded us the opportunity to initiate several new positions during the quarter at valuations we deem quite compelling. We continue to see opportunities with companies benefitting from increased defense spending, electricity infrastructure demand, and several idiosyncratic special situations – such as product launches, M&A catalysts, and spinoffs. We look forward to covering some of these companies in future commentaries.

It wasn’t all buying. During the quarter, we exited a few positions and trimmed others – either because our investment thesis had played out, valuations no longer offered attractive risk-reward, or new information prompted a change in our view.

We also added some tactical portfolio hedges that can help mitigate some downside that may arise during bouts of future market volatility.

You never know what you’re gonna get.³

While equity markets moved higher in the second quarter – climbing the proverbial wall of worry – we think it is prudent to continue to expect the unexpected in the current geopolitical climate.

As we have stated many times before, volatility and uncertainty can uncover and create compelling investment opportunities. Not only do we observe several trends that investors can benefit from, but there also continues to be a wide dispersion in valuations across the market cap spectrum that we can take advantage of.

In our view this is an environment that is rich with opportunity for active management – one that is well-suited to our flexible approach and value-oriented style. Please get in touch if you have any questions or if you would like to add to your investment in the Fund.

This information is intended to provide you with information about the Maxam Diversified Strategies Fund and is not an offer to sell or solicit. Disclosed performance is based on Class X, A and F units and is net of all fees and expenses. Inception date for Class X is June 30, 2009; Class A is December 31, 2012 and; Class F is January 31, 2013. The performance fees on Class X units are subject to a 5% annualized hurdle. Important information about the Fund is contained in the Simplified Prospectus and Fund Facts which should be read carefully before investing. Prior to August 24, 2022 this Fund was offered via Offering Memorandum only and was not a reporting issuer. Historical audited financial statements for this period are archived here. The expenses of the Fund would have been higher during such period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer. Prior to becoming a reporting issuer, the Fund was not subject to the investment restrictions and practices in NI 81-102. Important information about the Fund is contained in the Fund’s Simplified Prospectus, which should be read before investing. This presentation is neither an offer to sell securities nor a solicitation to sell securities. The securities of the Fund are sold only through IIROC registered dealers in those jurisdictions where it may be lawfully offered for sale. Accredited investors or certain other qualified investors may also purchase securities through Maxam Capital Management Ltd in reliance on certain prospectus exemptions available in National Instrument 45-106. Investors should consult with their own investment advisor and obtain a copy of our applicable Simplified Prospectus and Fund Facts documents before investing in the Fund. Investors should seek advice on the risks of investing in the Fund before investing. This document may contain forward-looking statements. These forward-looking statements are based upon the reasonable beliefs of Maxam Capital Management Ltd. at the time they are made and are not guarantees of future performance, are subject to numerous assumptions, and involve risks and uncertainties about general economic factors which may change over time. Maxam assumes no duty, and does not undertake, to update any forward-looking statement and cautions you not to place undue reliance on these statements as actual events or results may differ materially from those expressed or implied in any forward-looking statements made. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Simplified Prospectus before investing. Any indicated rates of return are the historical annual total returns including changes in value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This document is not intended to provide legal, accounting, tax or investment advice. Please consult an investment advisor and read the prospectus for the Maxam Diversified Strategies Fund prior to investing.

Deal bumps and a rebound in M&A activity.

Maxam Arbitrage Fund – Q2 2025 Commentary

Dear fellow investors,

The Maxam Arbitrage Fund¹ gained +2.79% in the second quarter to finish the first half of 2025 up +4.25%. Fund performance for the trailing 12 months was +7.04%.

Performance in the second quarter was driven by 15 successful deal completions and four deal price increase announcements. Plus, our SPAC positions benefitted from some increased excitement and activity in the space, in addition to the usual growth of cash held in-trust.

Looking back at Q2.

New deal activity rebounded materially throughout the second quarter following the slow pace set in Q1 and early April when deal makers stepped back to assess U.S. President Trump’s new policies and aggressive tariff announcements. We added 74 new definitive deals to our database in Q2, over 50% more than in the first quarter. We also observed 16 new hostile takeover announcements, compared to seven in Q1. Hostile takeover attempts are often a precursor to definitive deals.

Equity markets were quite volatile early in the second quarter, and this was reflected in some merger arbitrage deal spreads. We actively capitalized on wider spreads in deals where we held a high degree of conviction – benefiting as the spreads tightened through the balance of the quarter.

The Fund also profited from four deal price bump announcements during the quarter – highlighting some of the upside optionality in the strategy.

First it was H.I.G. Capital increasing its offer for Converge Technology Solutions from $5.50 to $6.00 per share after learning that Converge had received a superior offer from a third party. Then it was Carlyle Group increasing cash terms for bluebird bio from $3.00 to $5.00 per share in response to shareholders who wanted greater cash certainty versus the original cash plus contingent value right terms.

Next up it was MDA Space announcing that they were increasing their purchase price for Satixfy Communications by 43%, from $2.10 per share to $3.00, after the target received a competing bid from a third party. Finally, TransDigm Group raised their purchase price for Servotronics by 22%, from $38.50 per share to $47.00, also after being notified that their target had received a competing bid.

Not only do these bumps highlight the positive optionality that exists in merger arbitrage, but they may be indicative of attractive value in certain pockets of the market – especially in small/mid cap companies where we expect we will continue to see deal activity pick up as opportunistic buyers step in.

During the quarter we initiated 29 new merger arbitrage positions in the Fund and had 15 successful deal closures with zero deal breaks.

Deals that we owned which successfully closed during Q2 included: Intevac, Nevro, Logility Supply Chain Solutions, Accolade, Air Transport Services, Chimerix, Converge Technology Solutions, Melcor REIT, Beacon Roofing Supply, 2seventy bio, Despegar.com, Sierra Metals, Surgery Partners, bluebird bio, and PHX Minerals.

At the end of the second quarter the fund was diversified across 36 merger arbitrage positions.

Deal guy in the Oval Office.

While the total number of new deals increased in the second quarter, the total value of new deals declined due to fewer large transactions being announced. Larger deals are typically more complex and difficult to put together than smaller transactions are – thus the policy uncertainty from President Trump’s administration to begin the year has likely delayed some big deals.

On top of the policy uncertainty, despite leadership at the antitrust agencies (the FTC and DOJ) being replaced by self-professed more deal-friendly regimes, dealmakers were likely disappointed with the regulatory environment through the first few months of the year.

However, and notably, some large and high-profile deals reached successful completion during the second quarter. First it was Capital One’s acquisition by Discover Financial Services gaining regulatory approval. Next it was Nippon Steel’s acquisition of U.S. Steel getting approval from Trump after both he and Biden had said they wouldn’t approve the takeover of the storied U.S. company. And then it was Hewlett Packard’s deal for Juniper Networks getting approval after reaching a settlement with the DOJ.

These recent approvals suggest that perhaps the much-awaited more deal-friendly environment is finally upon us. Maybe having a deal guy in the Oval Office is a good thing for dealmakers, and for merger arbitrage.

A resurgence in SPAC IPOs

In recent quarterly commentaries we’ve been highlighting the improving capital raising environment for SPAC IPOs – and the flood gates opened wider in the second quarter. Almost US$10 billion was raised in Q2, over triple the amount raised the prior quarter – and for context, the total tradeable SPAC market universe at the start of the year was only US$15 billion. In total 44 new issues started trading, marking the most active quarter in four years.

The IPO resurgence drove combined trust values for all SPACs to north of US$25 billion, up from approximately U$17 billion last quarter as IPOs far outweighed liquidations and deal completions. Total listed SPACs at quarter end stood at 226, consisting of 86 SPACs with announced deals and 140 still searching for a transaction².

While we view the recent growth in the opportunity set for SPACs as a strong positive for the longer-term sustainability of this strategy within our arbitrage portfolio – we’d be remiss not to mention that the median IRR across the SPAC universe did compress during the quarter from approximately 5% towards 4%.

But a median is merely an average – and we are still finding ample opportunities to deploy capital into attractive risk-adjusted return situations as we actively work to high grade our SPAC exposure.

In addition to the recent increase of activity in the SPAC market, fresh comments from the Securities and Exchange Commission Chairman, Paul Atkins, suggest that regulators may look to ease some of the SPAC rules – potentially adding more opportunity for dealmakers and arbitrageurs.

The Fund’s SPAC exposure was well diversified across 75 positions at quarter end, providing the fund with a very low risk base of stability.

Steady through uncertainty.

Maxam Arbitrage Fund has provided investors with an attractive and consistent return, with low correlation to traditional equities and bonds, through a particularly volatile market for equities and bonds in the first half of 2025.

Despite ongoing market volatility and policy uncertainty, we were encouraged to see deal activity accelerate in the second quarter, especially in small and mid-cap transactions – a segment of the opportunity set where we are quite active and which we find especially compelling.

We are also seeing signs of a regulatory thaw, with several larger and complex deals recently securing approval after negotiated remedies, perhaps paving the way for a recovery in large transactions.

Bolstered by these positive developments and the underlying factors that support deal formation, we anticipate continued momentum in M&A activity. In the meantime, the opportunity set of current transactions and SPACs allows us to construct an attractive and diversified portfolio while applying our disciplined risk management framework.

Thank you for your trust and confidence. Please don’t hesitate to reach out with any questions.

¹ Maxam Arbitrage Fund, Class F, net of fees and expenses. Inception date October 1, 2020. Please contact us regarding other series of fund units or visit our website www.maxamcm.com

² SPAC data and statistics shared below is from spacinsider.com and the Maxam Capital Management database.

Maxam Capital Management Ltd. is the manager for the Maxam Arbitrage Fund. Important information about the Fund is contained in the Fund’s Simplified Prospectus, which should be read before investing. This presentation is neither an offer to sell securities nor a solicitation to sell securities. Disclosed historical returns for periods greater than one year are annualized unless otherwise noted and are net of fees and expenses. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Simplified Prospectus before investing. Any indicated rates of return are the historical annual total returns including changes in value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. This document is not intended to provide legal, accounting, tax, or investment advice. Please consult an investment advisor and read the prospectus for the Maxam Arbitrage Fund prior to investing. Please contact us for more information at: (604) 685-0201 info@maxamcm.com www.maxamcm.com

Finding value and investing during volatile times.

Maxam Diversified Strategies – Q1 2025 Commentary

Dear fellow investors,

The Maxam Diversified Strategies Fund¹ (the “Fund”) declined -5.8% in the first quarter of 2025. Over the last five years the Fund has compounded capital at +15.3%.

After a strong 2024 for equity markets, and the Fund (+27.1%), U.S. President Trump’s much more aggressive than expected tariff edicts and other policy announcements have quickly inflicted significant volatility and uncertainty into the capital markets.

Markets dislike uncertainty and unexpected negative surprises – and they have reacted accordingly through the first quarter and into April. A proverbial wall-of-worry has quickly been built, with investors rapidly pricing-in concerns ranging from trade wars and an economic slowdown to the re-ignition of inflation and a lack of clarity around the pace of federal reserve interest rate cuts.

This environment is somewhat unique because the uncertainty currently impacting markets has predominantly been driven by the actions and rhetoric of a single individual – one who holds a notable position of authority. However, it has already been observed that he will alter his stance swiftly.

Investing during volatile times.

Environments of uncertainty, volatility, market corrections and crashes are nothing new – all have happened regularly over time.

As investors, certainly as managers of investors’ capital, we must accept that volatility is part of the journey. But rather than just accept it – we endeavour to embrace it.

Regular readers of our commentaries will know that we often identify opportunities during periods of market volatility, when compelling value is revealed.

In our Q2 2022 commentary² we wrote about the concept of “what’s priced-in?”. The concept is that when everyone is talking about the uncertainty and the challenges facing the economy and markets, some of that information and sentiment is certainly already reflected in securities prices.

The notion that the market needs a wall-of-worry to climb higher on is related to this. Concern and uncertainty lead to lower prices, and as a result, lower valuations. As the uncertainty begins to dissipate – through adaptation, growth, policy change, etc. – the climbing of the wall begins.

While being mindful that neither the broad markets nor individual security prices move in straight lines – we are seeing compelling investment opportunities in select companies that we are taking advantage of, in a measured fashion.

Some of our most successful investments have been borne from prior market corrections and periods of elevated volatility. This will be the same.

Positions and activity recap.

We were active during the first quarter, and our activity accelerated somewhat in April. An increase in action is warranted when some stocks are moving as much in a single day as they typically do in a full year!

We have opportunistically used the market correction to add to some of our high conviction holdings at prices that we believe represent excellent value. And we have also initiated some new positions in companies that were on our watchlist as their prices hit our investment criteria during the volatility.

On the other side of the ledger, we reduced and exited some holdings where we view the reward-to-risk outlook as less favourable at present – raising capital for other investment opportunities we deem more compelling.

Performance was mixed and on average lower across the portfolio during the first quarter, and then broadly more negative in early April as investor fears increased following President Trump’s “Liberation Day” tariff announcements. As this commentary goes to print, Fund performance in April has rebounded to where we are now slightly positive for the month.

Some of the Fund’s strongest performers in 2024 were amongst its weaker performers in the first quarter. Given their significant moves last year, some profit-taking was likely occurring, and some investors might have been waiting to realize capital gains in the new tax year.

This group of companies included MDA Space, Kraken Robotics, VitalHub and Exchange Income Corp. AG Growth International was a notable weak performer for the Fund in Q1 after the company announced results that failed to meet its own financial guidance. The company trades at a historically cheap valuation, but we have further reduced the position until we have more confidence in their outlook.

Exchange Income Fund (EIF) was a good performer for us last year, and an example of a name we have added to during the recent market volatility. We initiated a position in EIF last year at approximately $46 per share, and the shares ended 2024 approximately 30% higher, near $59. Then, during this year’s market volatility, the shares declined to as low as $45, or ~24% lower.

We met with EIF’s management team while their share price was under pressure in mid-March. We received a thorough update on the business – covering their various business lines, tariff exposure (very little), recent and future M&A activity, and potential upcoming catalysts. Following the update – bolstered by an attractive valuation (a P/E ratio near 12x, an EV/EBITDA multiple under 6x, a dividend yield over 5%), a stable and growing business, and potential future catalysts – we opportunistically increased our position in EIF during the market volatility.

MDA Space, a provider of robotics, satellite systems, and technology to the space industry, is another position that came under significant pressure this year after being a strong performer for the Fund in 2024. MDA declined over 30% from its 2024 year-end mark on fears that the exports for this Canadian company would be subject to new tariffs. While the situation was fluid and uncertain, we judged the share price decline as a material overreaction – and eventually it was confirmed that USMCA compliant goods, like MDA’s, would be exempt from tariffs. We again took the opportunity to add to our position in the low $20s, and the shares have begun to trade higher as investor fear has subsided.

McCoy Global is a newer position for the Fund, and one that we are excited about. It was a positive contributor in the first quarter, although quite volatile. The company provides products and services to the oil and gas sector…exciting right!? After following the company for a few years, we became intrigued by the new hardware and digital technology solutions that they had been developing and were on the cusp of commercializing.

We initiated a position in McCoy last fall and have added to it during the significant market volatility over the last couple of months. Just this past week, McCoy announced the successful commercialization of their new technology with a new contract. We think this will be a driver of meaningful growth and multiple expansion for the company.

You’ve probably noticed a recurring theme in our comments. We like using market volatility to add businesses that are generating strong results, their outlook and valuation are good, yet their stock price is down in tandem with the overall market weakness.

There have been several situations like this recently, and we expect we will see more ahead.

Don’t look back, you’re not going that way.

Just a few short months ago, in our year-end commentary, we wrote:      

It is prudent to expect some volatility in a shifting market environment where concerns regarding inflation, rate volatility, and fiscal uncertainty are present – not to mention a new U.S. President that is shaking things up.

One of the great truths about market volatility and pullbacks is that they both create and unveil compelling investment opportunities. If there is a market pullback (and as we’ve said before, there usually is), we will be selectively taking advantage of it.

That statement is obvious in hindsight and perhaps even more true today.

Looking forward, what will again be obvious in hindsight is that there were some very compelling investment opportunities available during this volatile environment. That is our focus and what we are endeavouring to take advantage of.

Thank you for your trust – our ability to navigate challenging market environments is enhanced knowing that we have an aligned investor base. Please get in touch if you have any questions or if you would like to add to your investment in the Fund.

This information is intended to provide you with information about the Maxam Diversified Strategies Fund and is not an offer to sell or solicit. Disclosed performance is based on Class X, A and F units and is net of all fees and expenses. Inception date for Class X is June 30, 2009; Class A is December 31, 2012 and; Class F is January 31, 2013. The performance fees on Class X units are subject to a 5% annualized hurdle. Important information about the Fund is contained in the Simplified Prospectus and Fund Facts which should be read carefully before investing. Prior to August 24, 2022 this Fund was offered via Offering Memorandum only and was not a reporting issuer. Historical audited financial statements for this period are archived here. The expenses of the Fund would have been higher during such period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer. Prior to becoming a reporting issuer, the Fund was not subject to the investment restrictions and practices in NI 81-102. Important information about the Fund is contained in the Fund’s Simplified Prospectus, which should be read before investing. This presentation is neither an offer to sell securities nor a solicitation to sell securities. The securities of the Fund are sold only through IIROC registered dealers in those jurisdictions where it may be lawfully offered for sale. Accredited investors or certain other qualified investors may also purchase securities through Maxam Capital Management Ltd in reliance on certain prospectus exemptions available in National Instrument 45-106. Investors should consult with their own investment advisor and obtain a copy of our applicable Simplified Prospectus and Fund Facts documents before investing in the Fund. Investors should seek advice on the risks of investing in the Fund before investing. This document may contain forward-looking statements. These forward-looking statements are based upon the reasonable beliefs of Maxam Capital Management Ltd. at the time they are made and are not guarantees of future performance, are subject to numerous assumptions, and involve risks and uncertainties about general economic factors which may change over time. Maxam assumes no duty, and does not undertake, to update any forward-looking statement and cautions you not to place undue reliance on these statements as actual events or results may differ materially from those expressed or implied in any forward-looking statements made. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Simplified Prospectus before investing. Any indicated rates of return are the historical annual total returns including changes in value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This document is not intended to provide legal, accounting, tax or investment advice. Please consult an investment advisor and read the prospectus for the Maxam Diversified Strategies Fund prior to investing.

Steady and positive through the market volatility.

Maxam Arbitrage Fund – Q1 2025 Commentary

Dear fellow investors,

The Maxam Arbitrage Fund¹ gained +1.42% in the first quarter of 2025.

Through the market volatility and uncertainty created by U.S. President Trump’s aggressive tariff edicts and other policy announcements, the Maxam Arbitrage Fund has been positive and steady – demonstrating its unique value as a portfolio diversifier.

Performance in the first quarter was driven by 19 successful deal closures and our SPAC positions continuing to benefit from liquidations, extensions, and the growth of cash held in-trust.

Looking back at Q1.

After a tepid start to the year, we saw several new deals announced towards the end of the first quarter with seven of the 16 new deals in March coming in the final week. That was a welcome sign given the volatility that Trump’s policies are inflicting on the markets. Thanks to the late quarter surge, global M&A values actually finished the first quarter up year-on-year – although it certainly didn’t feel that way.

Merger arbitrage spreads moved wider on some of the sharper down days for the markets over the last few weeks. This is not uncommon during periods of investor stress, especially on days when >90% of stocks were in the red.

We have used the market volatility to add to deals in which we have a high degree of conviction. Because of the short-duration nature of M&A transactions – and the basis that these deals are legally binding contracts – it is often beneficial to take advantage of such widespread volatility.

We added 49 new definitive deals to our database during the first quarter. 57% of those new deals targeted companies with market capitalizations under $1 billion – signifying healthy activity in a market segment that we like to take advantage of, and one that we suspect may be even busier in 2025.

During the quarter we initiated 19 new merger arbitrage positions, and we had 19 successful deal closures and zero deal breaks.

Some notable deals that we owned which successfully closed during the quarter included: Filo Mining, Smartsheet, 03 Mining, Barnes Group, SecureWorks, Avid Bioservices, Canadian Western Bank, Summit Materials, Heroux-Devtek, Redishred, Retail Opportunity Investments, EMCORE, Payfare, Arcadium Lithium, Lucero Energy, ICC Holdings, Quisitive Technology Solutions, and Softchoice.

At the end of the fourth quarter the fund was diversified across 22 merger arbitrage positions.

Dearth. Not death.

Although the total value of M&A deals increased in Q1, the number of deals was down. The 49 new definitive deals that we added to our database during the first quarter were 22% fewer than the 63 deals we added in the first quarter of 2024.

In our previous quarterly commentary, we stated that the “ingredients are in place for a strong period of M&A activity”. Those ingredients included: a supportive interest rate environment, valuation dichotomies, private equity funds with record amounts of undeployed capital, executive confidence, and an overhauled anti-trust leadership regime in the U.S. that is expected to be much more deal friendly.

Many of those ingredients remain in place today, however executive confidence has undoubtedly taken a hit from Trump’s tariff announcements – which have been much more aggressive than expected. As a result, some deals that were in-the-works have likely been put on hold pending more clarity.  

Experience informs us that a pick-up in M&A is a matter of when, not if. We saw a similar dynamic during the COVID-19 pandemic when deal activity slowed as deal makers and executives took a step back to assess the rapidly evolving landscape. As it became clear that the pandemic would not be the end of the world, nor of capitalism, deal activity resumed. The current uncertainty will subside, and we will see M&A pick up as it does.

And, after a market correction where valuation dichotomies have become even greater, we would not be surprised to see a higher number of management buyouts announced and hostile takeovers attempted. We expect this activity may be even more pronounced in the small and mid-capitalization segments of the market.

In that regard, this quote from Brookfield Corporation’s recent letter to shareholders caught our eye:

“…there are increasingly a group of companies that do not fit neatly into indexes and as a result, trade poorly relative to value. This creates a significant opportunity to take public companies private, as the value of the assets are far greater than the price that the assets trade in the market…”²

We enjoy the flexibility of being able to invest in both large and small cap deals. And we are ready to take advantage.

Keep Calm and SPAC On.³

The steady flow of SPAC IPOs continued into the new year with 19 new issues going public in the first quarter, down slightly from the 23 IPOs in Q4 2024. Total new issuance amounted to US$3.1 billion, marking the third quarter in a row above the US$3 billion mark. This relatively healthy SPAC IPO market contrasts to a rather lackluster market for traditional IPOs on both sides of the Canada-US border.

There were 197 listed SPACs at quarter-end, with 106 of those searching for a deal and 91 with announced deals working towards completion. Aggregate trust values for all SPACs was approximately US$17 billion, up from US$15 billion at year-end as IPOs outweighed liquidations and completions.

The rate of liquidations slowed in Q1 with seven SPACs deciding to return capital to investors, about half the average quarterly rate throughout 2024. This is primarily a result of many sponsors continuing to seek extensions when nearing the end of their initial timeline to complete a deal – as evidenced by approximately 60% of active SPACs having already taken at least one extension. Deal completions, aka de-SPACs, removed another 10 SPACs during the quarter.

The median IRR for the SPAC universe remained relatively steady throughout the quarter at around 5%. However, the bifurcation that we noted at year-end continues to persist. Younger issues with larger trust values trade in the 4-5% IRR range, whereas older issues with smaller trusts often trade above 5% IRRs. Our active and nimble approach allows us to take advantage of this dynamic. Hence, we remain quite constructive on the low-risk opportunity set that SPACs provide for us to deploy capital into.

At quarter end our SPAC exposure was well diversified across 66 positions, providing the fund with a very low risk base of stability.

Steady through the fog → poised for it to clear.

Maxam Arbitrage Fund – a liquid, short duration, and non-correlated strategy – has been doing its job during a particularly challenging market environment.

Bolstered by the aforementioned factors for deal formation that remain in place, we anticipate a pick-up in M&A activity as the fog of uncertainty currently clouding the markets dissipates.

In the meantime, the current opportunity set and the level of activity across deals and SPACs affords us the ability to build a diversified portfolio while applying our disciplined risk management framework. Thank you for your trust and confidence. Please don’t hesitate to reach out with any questions.

¹ Maxam Arbitrage Fund, Class F, net of fees and expenses. Inception date October 1, 2020. Please contact us regarding other series of fund units or visit our website www.maxamcm.com

² Brookfield Corporation Letter to Shareholders Q4 2024.

Maxam Capital Management Ltd. is the manager for the Maxam Arbitrage Fund. Important information about the Fund is contained in the Fund’s Simplified Prospectus, which should be read before investing. This presentation is neither an offer to sell securities nor a solicitation to sell securities. Disclosed historical returns for periods greater than one year are annualized unless otherwise noted and are net of fees and expenses. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Simplified Prospectus before investing. Any indicated rates of return are the historical annual total returns including changes in value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. This document is not intended to provide legal, accounting, tax, or investment advice. Please consult an investment advisor and read the prospectus for the Maxam Arbitrage Fund prior to investing. Please contact us for more information at: (604) 685-0201 info@maxamcm.com www.maxamcm.com