Which Sectors Leak the Most M&A Deals?


14 August 2017

2017 Intralinks Leaks Report

We recently published the 2017 Intralinks Annual M&A Leaks Report, which analyses and reports on worldwide M&A deal leaks. In this 5th and final blog post about the report, I’ll drill down into some of the key findings at the sector level. According to our findings, worldwide, the top three sectors for deals leaks in 2016 were Consumer, Retail and Real Estate.

The Real Estate sector, which has the highest long-term average rate of deal leaks, dropped to 3rd place in 2016 and was replaced by the Consumer sector, which increased its rate of deal leaks by an astonishing 7.8 percentage points to 15.5 percent. This is the highest worldwide rate of deal leaks of any sector in the past eight years.

Worldwide, the bottom three sectors for deal leaks in 2016 were Healthcare, Energy & Power and Industrials.

Percentage of worldwide deal leaks by sector

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Target Sector 2016 (Rank) 2015 (Rank) 2009-2016 (Rank)
Consumer 15.5% (1) 7.7% (7) 9.0% (2)
Retail 12.2% (2) 3.4% (9) 7.1% (7)
Real Estate 9.4% (3) 12.9% (1) 10.6% (1)
Materials 8.9% (4) 7.9% (6) 7.6% (4)
TMT 8.5% (5) 9.2% (4) 7.3% (5)
Financials 7.6% (6) 7.1% (8) 7.2% (6)
Industrials 7.2% (7) 8.0% (5) 8.4% (3)
Energy and Power 5.6% (8) 9.3% (3) 6.6% (9)
Healthcare 5.0% (9) 12.5% (2) 6.9% (8)

 

What’s behind the differences in the rate of M&A deal leaks by sector?

As the analysis in our report shows, leaked deals benefit sellers/targets in M&A transactions in two main ways: Leaked deals have significantly higher target takeover premiums (and hence higher target valuations) and encourage a higher rate of rival bids for the target (thereby increasing competition), compared to non-leaked deals.

The differences in the rate of deal leaks by sector may thus be the result of several forces:

 

 

  1. Sellers/targets in sectors which have a lot of M&A activity with significant competition for assets may be using deal leaks as a strategic tool to try to flush out the “optimal” acquirer, i.e., the one who has the greatest synergies with the target and who can therefore pay the highest price, hence the higher target takeover premiums in leaked deals. This conclusion is borne out by data from Thomson Reuters on target valuations. According to Thomson Reuters, over the past nine years the Real Estate sector has the highest average target EV/EBITDA[1] exit ratio, at 18.1x.
  2. Sellers/targets in sectors which traditionally have lower valuation multiples may also be more tempted to use deals leaks to try to increase the valuations for their deals. According to the Thomson Reuters data, the Industrials and Materials sectors, which have among the lowest average target EV/EBITDA exit ratios over the past nine years, are the number three and number four ranked sectors for deal leaks over the same period.


To find out more about M&A deals leaks, you can download the latest Intralinks Annual M&A Leaks report here.


[1] Enterprise Value/Earnings Before Interest, Taxation, Depreciation and Amortisation.

 



Philip Whitchelo

Philip Whitchelo

Philip Whitchelo is Intralinks’ Vice President of Strategic Business & Corporate Development