M&A Deal Leaks Feel the Heat
The 2018 Intralinks Annual M&A Leaks Report, which analyzes and reports on mergers and acquistions (M&A) deal leaks globally for the period 2009-2017, has just been published. In this INsights post, I’ll highlight some of the key findings.
1 October 2018
Worldwide M&A deal leaks: a downward trend?
Figure 1. Percentage of worldwide M&A deal leaks, 2009-2017
Worldwide, M&A deal leaks fell in 2017 compared to the prior year: 8 percent of all deals in 2017 involved a leak of the deal prior to its public announcement, compared to 8.6 percent in 2016.
M&A deal leaks by region: Asia Pacific rising, Americas and Europe falling
Figure 2. Percentage of M&A deal leaks by region, 2009-2017
While the rate of deal leaks in the Americas and Europe, the Middle East and Africa (EMEA) declined in 2017, the Asia Pacific (APAC) region saw its third consecutive year of increased deal leaks to a nine-year high of 10.8 percent.
M&A deal leaks by country: top and bottom three
Figure 3. Percentage of M&A deal leaks by country, 2009-2017
For the ten countries with the most M&A activity, the top three countries for deal leaks in 2017 were Hong Kong, India and the U.S. The bottom three countries for deal leaks in 2017 were France, Germany and South Korea. Hong Kong’s rate of deal leaks in 2017 more than doubled. The UK’s rate of deal leaks in 2017, at 1.5 percent, was the lowest for nine years.
What happens when deals leak: it’s all about the money
Figure 4. Worldwide median target takeover premium, 2009-2017
There appears to be one clear perceived benefit of leaking deals, at least on the sell-side: higher target takeover premiums resulting in increased valuations, possibly because of increased competition among acquirers for targets in leaked deals. From 2009-2017, the median target takeover premium for leaked deals was 44.4 percent vs. 26.5 percent for non-leaked deals. Leaking a deal may 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 for leaked deals). To quantify this, in 2017, an average of an extra US$7.7 million accrued to the shareholders of the targets in deals that leaked.
Risk vs. reward: could the attraction of deal leaks be waning?
Overall, against the perceived benefits, those leaking deals must also weigh the risks. Our research has conclusively shown that leaking deals leads to higher takeover premiums. Therefore, there is an economic incentive on the sell-side of a deal to engage in a leak which may increase the valuation of the target.
However, financial services regulators worldwide are increasing their efforts against both insider trading (a criminal offence in most jurisdictions) and different forms of market abuse, including M&A deals leaks (not usually a criminal offence in most jurisdictions, but increasingly a civil or regulatory offence). This probably accounts for the decline in deal leaks in the Americas and Europe in 2017.
In APAC, the continued increase in deal leaks may reflect greater cultural tolerance of deal leaking and a less well-developed regulatory and enforcement environment. As markets globally continue to align their regulatory standards and increase their levels of enforcement, we can expect to see the downward trend in worldwide deal leaks to continue.
To find out more about M&A deals leaks, you can download the 2018 Intralinks Annual M&A Leaks Report here.