In what is thought to be the world’s first research focused on pre-announcement market leaks in M&A, Cass established a universe of over 350,000 M&A deals between 1994 and 2007, and then using rigorous search criteria distilled the number of deals that had been disclosed in the press prematurely.
The exhaustive research project cast light on the sensitivities inherent within M&A activity and the destabilising effect a press leak could have on the deal process – revealing that whilst 97% of non-leaked deals are classified as friendly* this figure drops to 80% where there are instances of an identifiable leak.
The study showed that both the target and bidder might suffer in the process – the results indicate that the premium paid by the winner in a leaked deal is on average 13% less than in non-leaked deals. This runs counter to the belief by some sellers that a premature deal announcement will attract more bidders and thus drive up pricing.
Further illustrating the impact a press leak might have, the study also suggests that whilst the average time taken for a non-leaked deal to complete stands at 62 days, this figure increases by 43 days (or 70%) – bringing the average time to complete to 105 days – if the deal is prematurely announced.
Andrew Pearson, Managing Director EMEA at IntraLinks, commented:
“Many people in many organizations are involved in the M&A process, and since they all now have access to electronic communication channels, it is more important than ever to control and monitor the flow of information about a deal before it has been announced. The run-up to announcement is a particularly sensitive point in the M&A process and our research shows the potential damage caused by press leaks at this stage. Centralizing information flow through a system with a complete audit trail engenders better behaviour and trust that confidentiality will be respected."
Professor Scott Moeller, M&A lecturer and former managing director and senior investment banker at Deutsche Bank and Morgan Stanley, commented on the research that he supervised:
“Market leaks and insider trading receive considerable press attention but this is the first study to identify the impact of a pre-announcement leak to the press. Companies would be wise to heed the factors identified in this research so that they are fully aware of the historical impact of such leaks on deal activity.”
Andrew Pearson, Managing Director EMEA at IntraLinks, concluded:
“As the financial industry looks at better ways to manage and mitigate risk we anticipate virtual datarooms (VDRs) to really showcase their value. Confidentiality and speed are vital to the success of the financial markets – the very ethos lying behind VDRs and their use in the M&A process.”
* ’Friendliness’ is classified as a deal completed with Board endorsement
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