What happens when an M&A deal leaks?
In research sponsored and released today by IntraLinks and conducted at Cass Business School, we have analysed what happens to deals when they leak to the public prematurely. The answer is unsurprising and not good for those who want the deal to complete in a timely fashion.
Our analysis of over 350,000 deals since 1994 showed the following:
- Deal Completion: less than half of all leaked deals complete, compared to 72% of all non-leaked deals.
- Friendliness: only 80% of leaked deals are friendly, compared to 97% of all non-leaked deals
- Delays to Closing: leaked deals take alomost 70% longer to complete than non-leaked deals (105 days on average vs 62 days).
- Premiums: in a counter-intuitive finding, the premium paid in leaked deals is slightly less at 24% vs 28% on average for all deals.
Certainly, 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. As noted in the IntraLinks press release on this study, 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.
The press release can also be seen here and as a news story it has been covered in the Financial Times Alphaville (you’ll need to scroll down a ways to find the reference in FT Alphaville), Yahoo Finance, Financial News, CFO.com and other publications on-line.
As always, I’m interested in your comments on whether you find these findings to be consistent with what you’ve observed, and especially the counter-intuitive finding that leaked deals have lower premiums.
Intelligent Mergers 
Note the story on 6 June in The Independent entitled ‘FSA urges companies to tighten up procedures in takeover deals’ (http://www.independent.co.uk/news/business/news/fsa-urges-companies-to-tighten-up-procedures-in-takeover-deals-841479.html). That article is about the UK’s Financial Services Authority telling investment banks and other firms involved in M&A deals that they need to be more vigilent on who knows or can find out about takeovers before they are publicly announced. This isn’t exactly the same as leaking the information to the press (as researched by our study above), but is related. In its report, the FSA said that 29% of deals showed ‘informed trading’ in the two days leading up to an announcement.
Scott Moeller
Saturday, 7 June 2008