A special situation in finance is an atypical event which has the high potential to alter the future course of a business, materially impacting the company's value. The connotation of the event may be both positive (for example, merger or acquisition) and negative (conflict, distress, etc.) The notion also covers corporate restructuring and corporate transactions, such as spin-offs, share repurchases, security issuance/repurchase, asset sales, or other catalyst-oriented situations. Further, a shareholders conflict is also considered a special situation.
Seeking for and investing in special situations is a strategy pursued by a number of investors. To take advantage of a special situation, a hedge fund manager must identify an upcoming event that will increase or decrease the value of the company's equity and equity-related instruments.
Definition There is also a definition of special situation by Benjamin Graham:
Classes of special situations In his well-known book Security Analysis, Benjamin Graham divides special situations into six classes:Benjamin Graham, "Special Situation Investing", in Security Analysis, 1951 edition, pp 729-734. Class A: Standard arbitrages, based on a reorganization, recapitalization or merger plan Class B: Cash payout, in recapitalization or mergers Class C: Cash payments on sale or liquidation Class D: Litigated matters Class E: Public utility breakups Class F: Miscellaneous special situations
See also Alternative investments Bankruptcy Default (finance) Distressed securities Going concern Contingent value rights
References
External links What's Special About Special Situations Fixed Income? Special Situation Survey by Forbes Goldman Special Situation Profit Seen at Risk With Volcker Rule Fund.com Special Situations Tracker