PE Digest - Updated 18 Apr 2013
The risks associated with a M&A deal leaked to the press or rival firm have heightened, and are causing some deals to collapse before execution, according to research from IntraLinks, a provider of deal sourcing software.
Intralinks teamed up with Cass Business School in London to study some 4,000 M&A deals from 2004 through 2012 and interviewed 30 M&A dealmakers in Europe and the US to study the effects of leaked deals. The study concluded leaked deals on average take a week longer to close and are 9 percent less likely to actually complete than deals that have their confidentiality agreements honored by both buyer and seller.
William Kucera, a Chicago-based M&A partner at Mayer Brown, says the risks associated with leaked deals are especially pronounced for private equity buyers, who have more natural competition in the M&A hunting grounds. If a deal is leaked, it can be very difficult to identify the culprit during an investigation
“If one private equity firm thinks a deal is profitable, many other private equity firms are likely to think the same for them, and maybe more so after learning one of their rivals has signaled interest in a target company,” said Kucera. “In comparison, trade buyers often bid with specific strategies or synergies in mind that other trade buyers may find difficult to mimic.”
The study discovered a drop in leaked deals from a peak of 11 percent during 2008-2009, to 7 percent during 2010-2012.
During interviews, dealmakers said a general slowdown in the dealmaking environment has made buyers less likely to encourage rival bids and sellers more cautious of complicating and delaying bid discussions. Better tools for maintaining confidentiality and a stricter regulatory enforcement were cited as two other drivers of the trend.
Kucera said little can be done to prevent a determined buyer or seller from deliberately leaking a deal. “Keep your circle small and move quickly towards execution, because even if a deal is leaked, it can be very difficult to identify the culprit during an investigation.”