Intralinks’ annual “M&A Leaks Report” makes for interesting reading – it analyzes deal leaks over the period from 2009-2016, and breaks them down by world region, country & business sector. The report also looks into the effect of leaks on the premiums paid, emergence of rival bidders & time to closing.
This recent blog scopes out the report’s conclusions on which business sectors’ deals leaked most frequently. In 2016, consumer deals were the leakiest (16%), with retail deals (12%) & real estate deals (9%) following behind. Real estate deals were the leakiest during the prior two years, and have the highest overall rate of leaks over the eight years covered by the report. The healthcare (5%), energy & power (5%) and industrials (7%) sectors were the most tight-lipped last year.
This blog excerpt speculates on what may account for the differences between the various sectors when it comes to leaks:
– Sellers/targets in sectors which have a lot of M&A activity with significant competition for assets may be using deal leaks as a strategic tool to try to 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 in leaked deals. This conclusion is borne out by data from Thomson Reuters on target valuations. According to Thomson Reuters, over the past nine years the Real Estate sector has the highest average target EV/EBITDA exit ratio, at 18.1x.
– Sellers/targets in sectors which traditionally have lower valuation multiples may also be more tempted to use deals leaks to try to increase the valuations for their deals. According to the Thomson Reuters data, the Industrials and Materials sectors, which have among the lowest average target EV/EBITDA exit ratios over the past nine years, are the number three and number four ranked sectors for deal leaks over the same period.
The report also found that leaked deals have significantly higher premiums & a higher rate of rival bids in comparison to non-leaked deals.
– John Jenkins