M&A Deal Leaks Increase
18 January 2017
“Beware of little expenses. A small leak can sink a great ship.” It’s one of Benjamin Franklin’s best-known quotations. However, in 2015 it seems dealmakers concluded that the benefits of leaking deals were – even more so than in the previous year – occasionally worth the risk.
The latest Intralinks Annual M&A leaks Report , a study that examines 5,024 deals from 2009-2015, found that in 2015 the percentage of deals that leaked rose compared to the previous year. Here are the key findings from the report:
- Deal leaks have increased globally. Despite new regulations and increased enforcement by financial services regulators to try to prevent market abuse, the percentage of deal leaks globally increased to 8.6% of all deals in 2015, compared to 6% in 2014 and an average of 7.5% from 2009-2015.
- North American deal leaks are at a seven-year high. For the second consecutive year, deal leaks in North America (NA) are higher than in Europe, the Middle East and Africa (EMEA). Over the period 2009-2015, EMEA had the highest average percentage of leaked deals at 8.9%, whereas NA had the lowest average percentage at 6.9%. However, since 2014, this trend has reversed: In both 2014 and 2015, the percentages of deal leaks in NA were significantly higher than in EMEA. This trend reversal is due both to a fall in deal leaks in EMEA (below historical averages) and to a sharp increase in deal leaks in NA: The incidence of NA deal leaks has increased for four consecutive years since the beginning of 2012, to a seven-year high of 12.6% in 2015.
- India moves from second to first place for deal leaks in 2015. In 2014, Hong Kong was the region with the highest percentage of deal leaks at just over 22%, followed by India at just under 16%. However, in 2015 their positions reversed: 20% of deals leaked in India, compared to just under 13% of deals in Hong Kong, a significant reduction for Hong Kong. The Hong Kong Securities and Futures Commission (SFC) significantly increased its staff and expenditure in 2015 and the previous two years in an attempt to combat Hong Kong’s reputation as a financial center with a more permissive culture, as far as market abuse is concerned.
- Leaked deals continue to have higher takeover premiums and also increased chances of attracting rival bids. In 2015, targets involved in leaked deals achieved a median takeover premium of 53%, compared to 24% for non-leaked deals, a difference of almost 30 percentage points – the highest such difference in four years. This difference could be related to the increased likelihood that leaked deals have in attracting rival bids: In 2015, 6.4% of leaked deals attracted one or more rival bids compared to 4.4% of non-leaked deals.
- Real Estate remains the sector with the highest rate of deal leaks in 2015, but Energy & Power jumped from 10th place to third. Globally, the top three sectors for deals leaks in 2015 were Real Estate, Healthcare and Energy & Power. The Real Estate sector maintained its position as the one with the highest incidence of deal leaks, at just under 13%. The most significant move came from the Energy & Power sector which jumped from 10th place in 2014 (2.6%) to third place in 2015 (9.3%).