Special situation


A special situation in finance is an atypical event which has the potential to alter the future course of a business, materially impacting the company's value. The notion covers corporate restructuring and corporate transactions such as spin-offs, share repurchases, security issuance/repurchase, asset sales, or other catalyst-oriented situations. A conflict of shareholders is also considered a special situation.
To take advantage of special situations, 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.

Investors

Generally, the special situations investing is considered to be a subclass of alternative investments. Special situations are very risky and challenging as businesses go not as usual. They require specialized expertise; determining the best price can be difficult. In addition, profits are far from assured, because prices might increase as more money chases deals. Therefore, such situations are monitored and sought after by hedge funds, for they provide interesting investments opportunities. Private equity funds and other institutional investors also do special situation investments as part of their strategies.

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: