Tag: Maxam

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

Valuation dichotomies persist. Taking advantage of the volatility.

Maxam Diversified Strategies – Q4 2024 Commentary

Dear fellow investors,

The Maxam Diversified Strategies Fund¹ gained +5.8% in the fourth quarter to finish the 2024 calendar year up +27.7%.

Great year. On to the next.

Equity markets were positive in the fourth quarter, capping off a strong year despite concerns regarding economic growth, ongoing geopolitical conflicts, and a fiercely contested U.S. presidential election.

Market breadth did improve in 2024, however the artificial intelligence theme and the largest cap technology companies – most notably the Magnificent 7² – continued to significantly influence the direction of equity markets. While gains have been uneven and top-heavy, resulting in valuations being more expensive than they were a year ago, the current environment is supportive of equities.

Looking ahead, economic and earnings growth are expected to continue, but risks like inflation, rate volatility, and fiscal uncertainty are present. Equity market volatility is always to be expected – and can be actively taken advantage of.

President Trump’s re-election has boosted investor sentiment with expectations of tax cuts and deregulation, and there is attractive value in select companies and certain segments of the market. Small and mid-capitalization companies continue to trade at discounts to their larger peers, and Canadian equities are broadly cheaper than U.S. equities.

Positions and activity recap.

Performance was generally positive across the portfolio during the quarter, with notable positive contributions from Dexterra Group, Kraken Robotics, Maxim Power, MDA Space, VitalHub and Westaim.

Westaim is a company that we have owned in the fund for a few years now – one that we’ve considered to be a special situation owing to the hidden value we saw and the catalyst driven nature of our thesis. Our initial view was that Westaim’s share price did not accurately reflect the value of the two financial services businesses that it owned significant stakes in, and that growth and catalysts would unlock said value.

After a bit of waiting – “are we in a value trap?” – Westaim monetized a significant portion of one of its assets, Skyward Specialty Insurance, crystallizing value onto its balance sheet. While its share price had appreciated, Westaim continued to trade at a discount to its sum-of-the-parts value. With significant cash on hand (we like the option value of capital in the hands of shrewd management), Westaim had options to further enhance shareholder value via buybacks, a substantial issuer bid, or another accretive use of capital.

In early October, Westaim announced that it had entered into a transformative transaction that would see it depart from its holding company structure and evolve into an integrated life insurance and asset management company with significant growth potential. Westaim shares reacted very favourably to the news.

Maxim Power, an independent power producer based in Alberta, is another investment that we classify as a special situation. Familiar with the company from a previous investment, we opportunistically purchased the majority of our current position from October to December 2022 following a fire at their core electricity generating asset – at what we believed was a very attractive valuation. Our thesis was that once the repairs from the fire were completed (paid for by insurance), and the plant got up and running, the valuation would begin to re-rate based on the results of the operations.

The thesis was generally playing out as expected, and our confidence in value was bolstered by Maxim Power’s regular share buyback activity and insider buying. Notably, two insiders owned approximately 70% of the company’s outstanding shares.

Maxim Power’s share price moved sharply higher in early November when, along with its third quarter results, it announced that – after a year of successful operations (post restart after fire related repairs) – its cash position significantly outweighed its debt obligations and that it would use the surplus cash to reduce debt and reward shareholders with a $0.50 per share special dividend. Additionally, the two significant insiders also elected to convert their outstanding loan to Maxim Power into more shares. Following the debt conversion the two insiders collectively own over 76% of outstanding shares. What’s next for this free cash flow generating, tightly held company?

Dexterra Group, a market leader in workforce accommodations and facilities management, is a newer name to our portfolio having accumulated a position throughout the second half of 2024. We were initially drawn to the company’s low trading valuation and recent news releases announcing some divestitures – only to find many other positive attributes under the hood. In 2023 Mark Becker was promoted to CEO from COO and has been busy streamlining the business into a more capital-light model with a strong focus on free cash flow and prudent capital allocation. Also, unfavourable contracts entered into prior to 2022’s inflation spike were being rolled to more favorable terms, helping lift margins. While the share price has started to reflect these recent catalysts, we see further upside and believe management has many more levers to pull to unlock value. Stay tuned.

Marine focused technology company, Kraken Robotics’ market cap has gone from under $100 million 18 months ago when we first discovered it, to over $700 million today. Kraken’s business has ramped with demand for its technology and services, which range from surveillance of underwater infrastructure to specialized batteries and sensors for unmanned autonomous underwater drones. After the sharp rise in its share price over the last couple of years we expect it may consolidate near current levels before further gains – but the story remains catalyst rich.

MDA Space, provider of robotics, satellite systems, and technology to the space industry, was again a stellar performer for the fund this past quarter. Demand has been ramping, and MDA’s backlog has been building, as the new space race is on.

Sylogist, a provider of mission-critical software to the public sector, declined approximately 22% in Q4 after reporting results that didn’t wow investors – it was the fund’s largest detractor to performance during the quarter. We took advantage of the share price weakness, opportunistically adding to our position in this quality business.

Overall, we were quite active during the fourth quarter, both adding to and trimming some existing positions – as well as initiating some new holdings. And we have continued to be active into the first quarter of 2025.

M&A on the rise.

M&A activity in the small and mid-capitalization segments of the market was strong last year – notably, a couple of our core holdings were acquired: Hamilton Thorne and Heroux-Devtek. And on the first trading day of 2025 another one of our positions (albeit a small one), Quisitive Technology Solutions, announced it was being acquired by private equity firm H.I.G. Capital.

Through our management of the Maxam Arbitrage Fund we keep very close tabs on the M&A environment – analyzing everything from who’s buying who to understanding what is driving activity. In that regard, we see an increasingly attractive outlook for mergers and acquisitions in 2025³.

In our last commentary we discussed that M&A activity is highlighting where the value is – and the activity in Canada has been noteworthy. Strategic and financial buyers appear to have their sights set on some of Canada’s quality companies, many of which trade at attractive valuations. And the depreciated Canadian dollar may provide extra incentive for U.S. based acquirers to pull the trigger sooner than later – we just hope some of our favourite holdings don’t get taken from us too early.

May you invest in interesting times.

2024 was a strong year of performance for the fund – and we are excited about the prospects and catalysts ahead for the fund’s current holdings.

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.

Some of our past successful investments – special situations like Westaim and Maxim Power, and early identified hidden gems like Kraken Robotics and VitalHub – were found during periods of market volatility.

Valuation dichotomies continue to exist across the market capitalization spectrum – a set-up that we believe is well-suited to our flexible approach and value-oriented style.

Thank you for your trust and confidence. Please reach out with any questions.

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.

Favourable conditions for more M&A.

Maxam Arbitrage Fund – Q4 2024 Commentary

Dear fellow investors,

The Maxam Arbitrage Fund¹ gained +1.53% in the fourth quarter of 2024.

Performance in the fourth quarter was driven by 26 successful deal closures and some spreads narrowing to our benefit as deals advanced towards completion. In addition, our SPAC positions benefitted from liquidations, extensions, and the growth of cash held in-trust.

Our positive outlook for arbitrage in 2025 is supported by several strategy specific tailwinds and attractive yields across our opportunity set.  

Looking back.

New M&A announcements continued with good momentum through to year–end. In Q4 we added 69 new definitive deals to our database and 10 additional non-definitive or hostile situations.

Looking back at the full year, we added 272 new deals to our database, which is approximately 10% more than we added in 2023. Over 62% of 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.

2024 was generally considered to be a challenging year for merger arbitrageurs because of the aggressive and novel approach that antitrust regulators took towards deals under the Biden administration. And the fourth quarter was not without some drama. The FTC won lawsuits to block Tapestry’s takeover of Capri (accessible luxury handbags), and Kroger’s merger with Albertsons (groceries). And, while technically not in Q4, outgoing President Biden blocked the proposed acquisition of U.S. Steel by Japan’s Nippon Steel on January 3, 2025, citing national securities concerns. Looking forward, there is reason for optimism on the regulatory front – more on that below.

There was some excitement in early December for one of our positions. The Canadian Western Bank-National Bank of Canada arbitrage deal spread spiked wider on December 6^th after Canadian Western Bank (“CWB”) announced that it was delaying the release of its quarterly earnings until “mid-December”. It is uncommon for a Canadian bank to delay reporting on the day of the expected release, especially without providing any rationale – this led the market to speculate that there may be an issue with the pending merger. CWB calmed those fears with a subsequent and rare Saturday press release, stating that the reporting delay was unrelated to the pending acquisition by National Bank.

We took advantage of the wider spread in the subsequent days, opportunistically adding to our position at an attractive yield. Then we received an early Christmas present on December 20^th when National Bank announced that the Minister of Finance had granted final approval for their acquisition of CWB and that the deal was expected to close in early February 2025 – several months earlier than originally expected.

During the fourth quarter we initiated 22 new merger arbitrage positions, had 26 successful deal closures and experienced one deal break.

Some notable deals that we owned which successfully closed during the quarter included: PowerSchool Holdings, Sleep Country Canada, Crew Energy, PetIQ, Osisko Mining, OneSoft Solutions, Stelco, Nuvei, Hamilton Thorne, Altius Renewable Royalties, Catalent, Consolidated Communications, and FLYHT Aerospace Solutions.

At the end of the fourth quarter the fund was well diversified across 29 merger arbitrage positions.

Looking forward… tailwinds are here for M&A.

We see an increasingly attractive environment for mergers and acquisitions, which is a positive set-up for merger arbitrage in 2025.

Most notably the regulatory landscape is set to change under President Trump, with his appointment of Gail Slater to lead the Department of Justice’s antitrust division and Andrew Ferguson as Chair of the Federal Trade Commission. In a memo circulated by Ferguson outlining his priorities he said he would “stop Lina Khan’s war on mergers.”

In addition to a more predictable regulatory environment, increasing optimism surrounding the economy, solid corporate balance sheets, growing profits, and higher stock prices provide executives with the confidence to make acquisitions.

In September 2024 the U.S. Federal Reserve reduced the fed funds rate for the first time in four years, and markets continue to expect further cuts – albeit at a more moderate pace than expected a few months ago. Stable and accommodative monetary policy further supports new deal activity – in particular from levered buyers such as private equity funds that are sitting on record amounts of undeployed capital.

As highlighted above, new deal activity in the small and mid-capitalization segments of the market was strong last year and we expect that this will continue. In our Q2 2024 commentary we wrote about the pick-up in takeover activity in Canada, particularly with smaller companies. We believe that strategic and financial buyers continue to have their sights set on some of Canada’s quality companies, many of which trade at attractive valuations – and the depreciated Canadian dollar may provide extra incentive for U.S. based acquirers to pull the trigger.                                               

The ingredients are in place for a strong period of M&A activity, and therefore for merger arbitrage.

SPAC to the future!²

The SPAC IPO market continued its healthy stream of new issuance in the fourth quarter with 23 SPACs going public, up from 18 in the prior quarter. One would have to jump in a DeLorean and travel back to the first quarter of 2022 to find more SPAC IPOs! In total, Q4 capital raised amounted to US$3.7 billion, almost equivalent to 2023’s entire new issuance. Overall, there were 57 new SPACs IPOs in 2024, raising proceeds of US$9.6 billion – an encouraging sign that this investment vehicle isn’t going away anytime soon.

At year-end there were 196 listed SPACs consisting of 104 searching for deals and 92 with announced deals working toward completion. Total trust values were nearly US$15 billion, however the universe has become increasingly bifurcated as of late with many older SPACs (>2 years since IPO) holding small trust accounts due to redemptions from extension votes – whereas recent IPOs still hold large trust balances. This newer dynamic is one that our active and nimble approach can take advantage of – exploiting smaller trust redemption opportunities at quite favourable IRRs.

In Q4 there were 12 SPAC deal completions, aka de-SPACs, and 16 liquidations, bringing the 2024 totals to 73 and 58 respectively. While these far outweigh the 2024 IPOs mentioned above, we are cautiously optimistic that the size of the SPAC market is starting to find a healthy floor after the steep declines following the bubble-y new issuance period of 2020-21.

Much like the shifting regulatory environment for M&A, it appears there may be positive developments ahead for SPACs as well. During the Biden administration SPAC issuers frequently had to deal with uncertainty – buyback excise tax, warrant accounting changes, etc. – which no doubt weighed on new issuance and ended up driving many sponsors to domicile in the Cayman Islands instead of Delaware (or other states). It also drove up the fees paid to accountants and lawyers, digging into the economics for SPAC sponsors.

President Trump’s nominee for Commerce Secretary, Howard Lutnick, is not only a serial SPAC sponsor, having been CEO of numerous SPACs over the past few years, but he is also the CEO of Cantor Fitzgerald, a leading SPAC IPO underwriter which had 12 IPOs in 2024. And let’s not forget that Trump himself brought Trump Media & Technology Group (DJT) public via a SPAC.

It seems likely that a more supportive environment for SPACs is on the horizon.

Our SPAC exposure was diversified across 61 positions at year-end. While the median IRR for the SPAC universe decreased a little bit over the few months to approximately 5%, the aforementioned bifurcation of the SPAC market has created numerous opportunities above this level that we are actively taking advantage of, keeping us constructive on this low-risk opportunity set to start the year.

Turning the page.

As we leave behind a challenging period for deal makers, we are as optimistic as we have been in years about the prospects for arbitrage. Our optimism is supported by key regulatory changes, an environment rich with tailwinds for increasing M&A activity, and attractive deal yields.

An increase in deal activity provides us with more opportunities to choose from, increasing return potential while also supporting our risk management framework.

The Maxam Arbitrage Fund has demonstrated its unique value over the last few years – generating positive returns during both equity and bond market volatility. We continue to have confidence in our strategy’s ability to generate positive returns regardless of the market environment.

With the recent interest rate moves and action in the bond market, a strategy like arbitrage makes a lot of sense to have in the mix. 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 www.spacinsider.com and the Maxam Capital database. And yes, the section heading is a reference to the 1980’s classic, Back to the Future.

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

Value is emerging in a broadening market.

Maxam Diversified Strategies – Q3 2024 Commentary

Dear fellow investors,

The Maxam Diversified Strategies Fund¹ gained +8.9% in the third quarter of 2024 to finish the first nine months of the year up +20.7%. Over the last 12 months the fund gained +28.7%.

The fund’s strong performance during the quarter was driven by two takeouts and general strength across the portfolio as capital continued to shift and search for value beneath the surface of the mega caps.

Top-down attentive.

While our investment process is primarily bottom-up in nature (company first), we are macro-aware – taking account of the forces at play.

The third quarter was positive for risk assets overall, however there were two notable bouts of equity market volatility. First in early August when interest rate cut discussions in the U.S. collided with concerns over rising interest rates in Japan, leading to a flash unwind in the Yen carry trade² – The Bank of Japan subsequently quelled these fears saying it would not raise rates amidst unstable markets. The second spell of volatility came in early September when anxieties flared over recent economic news and the upcoming FOMC³ meeting.

Constructively, each episode of market weakness was met with buying that sent markets upwards to fresh highs.

The U.S. Federal Reserve reduced the fed funds rate by 50bps in mid-September, an event that the markets had been anticipating for some time. Then in late September China announced various stimulus measures to support their struggling economy. The rate cuts and stimulus measures have been welcomed by investors, notably drawing some focus to interest rate-sensitive sectors and cyclicals – which are well-represented in the Canadian market.

Interestingly, while short-term rates have come down due to recent central bank policy actions, longer-term bond yields have been creeping upwards. Rising longer-term yields potentially reflect some concern over government debt levels and worries that inflation will pick up again – and they can also suggest that investors are shifting their portfolios towards riskier assets, such as equities.

While some volatility is always to be expected, numerous headwinds are transitioning to tailwinds that are broadly supportive of equities – the elements are in place to draw investor attention towards the many quality companies that have lagged, are growing, and trade at attractive prices.

Bottom-up focused.

Performance was generally positive across the portfolio during the quarter, notable positive contributors included: Hamilton Thorne, Heroux-Devtek, MDA Space, Kraken Robotics, VitalHub and Cipher Pharmaceuticals.

MDA Space, mentioned above, is a relatively new addition to the portfolio – we first acquired shares of MDA in September 2023 and have recently added to our position. MDA provides robotics, satellite systems, and technology to the space industry.

We have experience investing in the space industry, with previous successful investments in Norsat International, COM DEV International and exactEarth⁴. This industry is enjoying a resurgence again and MDA is benefiting from it. The company has a large and growing backlog of business and trades at an attractive valuation.

We were quite active during the third quarter, adding to some existing holdings when volatility presented us with opportunity, and initiating some new ones. We have also taken profits in some holdings where the catalysts or events we were targeting have occurred, and reduced or exited some names where we believe the risk-reward equation is no longer weighted in our favour.

M&A giveth (and taketh away).

Early in the quarter, two of our core holdings announced that they had agreed to be acquired by private equity funds. First, Heroux-Devtek, an aerospace manufacturer that specializes in landing gear for civil and military aircraft, said that it had agreed to be acquired by Platinum Equity, a U.S. based private equity firm. A little more than a week later, long-time holding Hamilton Thorne announced that it would be acquired by European private equity firm, Astorg Partners.

As Col. John “Hannibal” Smith of A-Team fame said: “I love it when a plan comes together”⁵. But, if you ever watched this 1980’s TV series, you’ll know that ‘the plan’ rarely went smoothly!

We of course have a plan, a thesis, for each of our holdings, but equities rarely move in a straight line. For example, we have owned Hamilton Thorne for several years and mentioned it in our quarterly commentaries on at least 10 different occasions – sometimes we mentioned it was additive to performance, and other times subtractive.

It is nice to see a short-term boost to performance, but it is somewhat bittersweet to have Hamilton Thorne leaving our portfolio as we believe its go-forward prospects are in excess of what we are realizing today.

While Hamilton Thorne’s business (lab instruments, consumables, and services for the assisted reproductive technology industry) is quite different from H2O Innovation’s (water infrastructure and technology), the up and down and up journey, concluding with an eventual takeout (discussed here), was quite similar.

Hamilton Thorne’s share price had recently come under pressure – getting no love from investors, albeit in a still difficult environment for smaller companies – resulting in a valuation that we believed was disconnected from its long-term value. We had begun to add to our position again, and then, like with H2O, private equity swooped in.

If you are noticing a theme…

M&A activity is highlighting where the value is. With many quality, small and mid-cap companies trading at unreasonably low valuations, or material discounts to their larger peers, we expect to see an uptick in M&A. Either the market will provide deserving businesses with a reasonable valuation, or an opportunistic acquiror will.

Value is emerging in a broadening market.

In our previous quarterly commentary, we stated that the ingredients were largely in place for the market to continue broadening beyond the mega-caps that dominated equity markets in 2023 and early this year. Cooling inflation and now interest rate cuts should help support that shift.

There are risks out there, as always, but we will work to selectively take advantage of any volatility with our company-specific and value-oriented approach – an approach that we believe is particularly well-suited to this shifting environment.

We continue to see attractive value in specific names and certain segments of the market – and we look forward to growth and catalysts on the horizon for our holdings.

Thank you for your trust and confidence. Please reach out with any questions.

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.

A shifting environment leads to positive tailwinds for deal activity.

Maxam Arbitrage Fund – Q3 2024 Commentary

Dear fellow investors,

The Maxam Arbitrage Fund¹ gained +1.1% in the third quarter of 2024.

Performance in the third quarter was driven by seven successful deal closures and some spreads narrowing to our benefit as deals advanced towards completion. In addition, our SPAC positions benefitted from liquidations, extensions, and the growth of cash held in-trust.

Attractive yields across our opportunity set and an improving environment for M&A activity supports our positive outlook for arbitrage.

Looking back.

New deal activity was steady during the third quarter. We added 66 new definitive deals to our database, plus another eight non-definitive or hostile situations. Year-to-date we’ve added 203 definitive deals to our database which is ahead of 175 deals added through the first three quarters of 2023.

Similar to previous quarters, there continues to be lots of M&A activity in the small and mid-cap segments of the market with 70% of the deals added to our database in Q3 under $1 billion in market cap.

The fund initiated 25 new merger arbitrage positions during the quarter, had seven successful deal closures and experienced zero deal breaks.

Notable owned deals that successfully closed during the quarter included: Apartment Income REIT, TSR Inc, Everbridge, Altus Power, Cerevel Therapeutics, Park Lawn and UGE International.

At the end of the third quarter the fund was well diversified across 42 merger arbitrage positions.

Looking forward.

Deal activity has been improving, but it’s been a challenging environment for M&A over the last few years due to high inflation, elevated interest rates, and aggressive regulators. However, those headwinds are now dissipating, and we see tailwinds that support a favourable outlook for arbitrage.

In our last quarterly commentary, we stated that interest rates had likely plateaued and appeared poised to start declining. We’ve now seen two 25bps cuts from the Bank of Canada this year and the U.S. Federal Reserve reduced the fed funds rate by 50bps in September – its first cut in four years. Lower interest rates not only provide relief to indebted consumers and businesses, but they also make it cheaper for strategic buyers and private equity funds to employ leverage to make acquisitions. Supporting new deal activity even further is record amounts of undeployed private equity capital.

In addition to easier credit conditions – solid balance sheets, improving corporate profits and rising stock prices provide executives with the confidence to make acquisitions.

The current regulatory environment under the Biden administration has been one of the most aggressive antitrust regimes in recent decades – frustrating several high-profile transactions and likely delaying other tie-ups – so, it should come as no surprise that the tightly contested U.S. presidential election is being watched very closely by both dealmakers and arbitrageurs.

While a Trump administration is expected to be much more deal-friendly, Harris has reportedly been courting Wall Street and coming under pressure from some large donors to make leadership changes in antitrust enforcement².

Whoever takes over in the oval office, it appears brighter days may be on the horizon for dealmakers.

SPAC from the dead.

In our Q2 commentary we noted a pick-up in SPAC IPOs during May and June – a trend that continued into the summer months. 18 new SPACs went public in the third quarter, including nine in August alone which was the highest monthly total since March 2022. This brings the year-to-date IPO count to 34 and nearly US $6 billion of capital raised, far surpassing the entire 2023 total when less than US $4 billion of new issuance came to market³. It might be zombie like levels compared to the bubble years of 2020 and 2021, but it’s nonetheless encouraging to see some signs of life in SPAC IPOs.

At the end of September there were 206 listed SPACs, down 12 during the quarter with the above-noted IPOs offset by closed deals and 11 liquidations³. Despite the shrinking universe, the aggregate value of all SPAC trusts increased slightly over the quarter to US $13.3 billion with new IPOs more than making up for those disappearing due to de-SPACs and liquidations.

Return estimates for existing SPACs continue to be healthy – the median IRR was north of 6% in Q3, and this has continued into Q4 – representing a compelling low-risk proposition with SPAC trust accounts invested in short-term government T-bills.

The end of the year is often a busy time for corporate actions with many SPAC sponsors weighing the pros and cons of liquidating or extending. Consideration is made as to whether the cost savings of winding up before year end outweigh the sponsor’s confidence in finding a quality deal. Such corporate actions can provide additional SPAC arbitrage opportunities.

Overall, we continue to see a healthy and low-risk opportunity set within the SPAC universe. The fund was diversified across 66 SPACs at the end of the third quarter.

Headwinds shifting to tailwinds.

We won’t call it a perfect storm, but we expect the pace of new deals to increase, driven by lower interest rates, significant undeployed private equity capital, a less challenging regulatory environment and rising corporate confidence.

While the most regulatory-challenged deals – such as Capri/Tapestry and Albertsons/Kroger – trade at very wide spreads, merger arbitrage yields on uncomplicated deals continue to trade in the high single and low-double digit annualized range. In particular, we continue to see healthy activity and attractive yields in small and mid-capitalization transactions, an appealing opportunity set that we are taking advantage of.

Maxam Arbitrage Fund has demonstrated its unique value over the last few years – generating positive returns during both equity and bond market volatility – providing investors with the ability to diversify risk and create more robust portfolios. With the recent interest rate moves and action in the bond market, a strategy like arbitrage makes a lot of sense to have in the mix.

We expect arbitrage to generate positive returns regardless of the market environment – and we think we have a particularly attractive environment in front of us. 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 https://ohiocapitaljournal.com/2024/10/18/both-presidential-candidates-are-courting-wall-street-will-antitrust-enforcement-be-the-cost/

³ SPAC data is from spacresearch.com

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