The research study, conducted with the M&A Research Centre at Cass Business School, London, and Remark, examined more than 4,000 transactions from 2004 through 2012 and includes interview commentary from 30 M&A practitioners in Europe and the U.S.
It found that leaked deals take longer to execute and are significantly less likely to close. The research interviews also showed that most deal leaks are deliberate, with leaking by sellers responsible for driving higher bid premiums and leaking by bidders or third parties done to terminate bid discussions.
“In the vast majority of cases, neither the buyer nor the target want the deal to leak, with both parties usually benefitting from keeping a takeover secret until they are ready to announce the transaction,” said Philip Whitchelo, vice president of product marketing at Intralinks. “It’s clear from our research that the risks associated with leaks are rising. As a result there’s evidence that sellers and their advisers are taking the issue of pre-announcement deal confidentiality much more seriously.”
The research examined significant pre-announcement trading in the stock of a target company in the days leading up to the bid announcement, which is highly indicative of information leakage about the deal. Key findings from the research include:
The number of deal leaks has been falling
There has been a drop in leaked deals from a peak of 11% during 2008-2009, to 7% during 2010-2012. In interviews, dealmakers suggested three main reasons for this fall: better tools for maintaining confidentiality, stricter regulatory enforcement and a slowdown in the dealmaking environment, where buyers aren’t as likely to encourage rival bids and sellers are more cautious of complicating and delaying bid discussions.
The risks from leaking deals have risen
The study found that on average leaked deals took over a week longer to close than those that did not leak. In addition, in the last two years, leaked deals were 9% less likely to actually complete than deals that were not leaked.
Leaking is much more common in EMEA, particularly the UK, than in the U.S., though the gap is shrinking fast
A geographical breakdown from 2004-2012 showed that leaks were far higher in EMEA (14%) compared to the U.S. (7%). However, analysis shows that this gap is shrinking fast, with UK leaks shrinking from a high of 22% during 2004-2007 to 13% during 2010-2012. While comparisons across territories is difficult, in the study interviews, there was widespread agreement amongst M&A practitioners that this was largely due to much stronger regulatory enforcement in the UK since 2008.
Leaked deals that close are more likely to be good deals for both seller and acquirer
Despite the risks involved, deals leak for a reason. The study found that leaked deals that complete result in significantly higher takeover premiums than non-leaked deals, with the average difference being 18 percentage points. For acquirers, leaked deals delivered higher long-term returns than non-leaked deals, with the average difference being 8 percentage points. The research interviews suggested that the reasons for both of these increases are the higher quality of targets involved in leaked deals.
“The study demonstrates that the current subdued M&A market makes leaking less beneficial, as it means that a company is far less likely to attract a rival bid,” said Professor Scott Moeller, Director of the M&A Research Centre, Cass Business School. “It also has implications in terms of enforcement as fewer deals means that there are fewer places to hide, and any leaked deal is likely to receive a lot of attention. It’s analogous to a single car speeding on a quiet road, which is more likely to get pulled over than a car on a busy road where everyone is speeding.”
To get a free copy of the Intralinks/Cass Business School report “M&A Confidential: What Happens When Deals Leak” please visit www.morethanavdr.com.
In the days leading up to a bid announcement, significant trading in the stock of the target company can be indicative of information leakage about the deal, and was the basis for concluding leakage in this study. While not providing absolute confirmation of a leak in an individual case, significant pre-announcement trading (SPAT) across a large sample can be used to examine patterns and trends in leaking across time periods and geographies. In the research study presented here, conducted by the M&A Research Centre at Cass Business School and commissioned by Intralinks, over 4,000 M&A transactions sourced from SDC Platinum between January 1st 2004 and October 16th 2012 were checked for SPAT activity using share and index price information from Thomson Reuters DataStream.
In conjunction with this research, interviews with 30 M&A professionals were conducted by Remark, a division of the Mergermarket Group, to get a clearer picture on the motivations and deterrents associated with leaking and to provide context to the figures.
About Cass Business School and the M&A Research Centre
Cass Business School, which is part of City University London, delivers innovative, relevant and forward-looking education, consultancy and research. Located in the heart of one of the world’s leading financial centres, Cass is the business school for the City of London.
MARC is the Mergers and Acquisitions Research Centre at Cass Business School - the first research centre at a major business school to pursue focused leading-edge research into the global mergers and acquisitions industry. MARC blends the expertise of key M&A market participants with the academic excellence of Cass to provide fresh insights into the world of dealmaking.
Forward Looking Statements
The forward-looking statements contained in this press release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are express or implied statements that are not based on historical information and include, among other things, statements concerning Intralinks’ plans, intentions, expectations, projections, hopes, beliefs, objectives, goals and strategies. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from those contemplated in these forward-looking statements. Accordingly, there can be no assurance that the results expressed, projected or implied by any forward-looking statements will be achieved, and readers are cautioned not to place undue reliance on any forward-looking statements. The forward-looking statements in this press release speak only as of the date hereof. As such, Intralinks undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise. For a detailed list of the factors and risks that could affect Intralinks’ financial results, please refer to Intralinks public filings with the Securities and Exchange Commission from time to time, including its Annual Report on Form 10-K for the year-ended December 31, 2012. Intralinks undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise.
Trademarks and Copyright
“Intralinks” and Intralinks’ stylized logo are the registered trademarks of Intralinks, Inc. This press release may also refer to trade names and trademarks of other organizations without reference to their status as registered trademarks. © 2013 Intralinks, Inc. All rights reserved.