Global Deal Is a Play on M&A

Returns also can suffer if a number of arbitragers pile into the same deals, narrowing the spreads between the share prices of companies involved in mergers and their acquisition prices.

That could happen if the volume of corporate-takeover activity backs off its recent highs, leaving more money chasing after fewer transactions. Global M&A rose 37.9% in 2006 to $3.8 trillion, shattering the previous record of $3.4 trillion during the peak of the freewheeling dot-com boom in 2000, according to Thomson Financial.

Kerry O'Boyle, a fund analyst at Morningstar, says that Gabelli doesn't follow conventional merger arbitrage strategy, because "he tends to buy one side of the deal" and doesn't hedge his risk by shorting stock of the acquiring company.

With the launch of Global Deal, Gabelli's Gamco Investors(GBL Quote) appears to be banking on the growing impact of private equity to sustain corporate takeover activity.

Private-equity firms participated in 19.9% of global M&A activity, pouring in $757.6 billion in 2006. In addition, activity continued to increase in developing countries, with booming industrial and commercial growth in nations such as India, China, Brazil and Russia, according to the Thomson survey.

Like the ABC fund, Global Deal will invest primarily in domestic and foreign securities involved in publicly announced takeovers, mergers, leveraged buyouts and tender offers. To a lesser extent, it will invest in companies undergoing corporate reorganization strategies such as liquidations, spinoffs and "stubs," or subsidiary target companies that are not included in the deal.