- Difference between median target
takeover premium for leaked deals vs. non-leaked deals was US$21
million in 2016
- 8.6% of worldwide deals leaked in
2016, the same as in 2015 and above a 6-year low of 6% in
2014
- Asia Pacific region records highest
rate of leaked deals in 2016 at 9.7%, deal leaks also rose
year-on-year in Europe but fell in North America
- Worldwide Consumer sector deal leaks
jump by 7.8 percentage points to 15.5% in 2016 - the highest of any
sector for eight years
Leaking information on mergers and acquisitions (M&A) deals
before any public announcement of the transaction added an extra
US$21m to the average value of deals announced in 2016 that leaked,
according to new research from Intralinks, a business of
Synchronoss Technologies, Inc. (NASDAQ:SNCR), and Cass Business
School, City, University of London.
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Percentage of M&A deal leaks by
region (Graphic: Business Wire)
In addition to evidence of higher valuations for M&A deals
that leak, the 2017 Intralinks Annual M&A Leaks Report,
published today, found that 8.6% of worldwide M&A deals were
leaked in 2016. This figure is unchanged from the previous year
(2015) and above a six-year low of 6% in 2014. In 2014, worldwide
deal leaks had been on a declining trend for the previous six
years, but this trend reversed in 2015 and 2016 – despite the
efforts of financial regulators globally in recent years to bring
in new regulations to curb deal leaks, and increase enforcement
actions and fines for market abuse and insider trading.
Of the ten countries with the most M&A activity, the top
three countries for deal leaks in 2016 were India (16.7% of deals
leaked), South Korea (16.1%) and Japan (12%). The three countries
recording the lowest percentage of deal leaks in 2016 were Canada
(4.3%), France (4.3%) and the UK (7%).
South Korea, Japan, Germany, Australia, the UK and France all
recorded an increased rate of deal leaks in 2016 compared to 2015.
Countries which reduced their rate of deal leaks in 2016 included
India, Hong Kong, the US and Canada.
Percentage of M&A deal leaks by country
Target Listing Location
2016 (Rank)
2015 (Rank)
2009-2016 (Rank) India 16.7% (1)
20.0% (1) 15.8% (1) South Korea
16.1% (2) 5.3% (6) 10.2% (4)
Japan 12.0% (3) 3.1% (7)
5.1% (9) Hong Kong 10.0% (4) 12.9% (2)
14.6% (2) United States 9.8% (5)
12.6% (3) 7.6% (6) Germany 9.1%
(6) 0.0% (10) 9.3% (5) Australia
7.5% (7) 3.0% (8) 4.0% (10)
United Kingdom 7.0% (8) 6.7% (5)
12.5% (3) France 4.3% (9) 0.0%
(9) 5.4% (8) Canada 4.3% (10)
12.5% (4) 5.9% (7)
Over the period 2009-2013, Europe, the Middle East and Africa
(EMEA) had the highest average rate of leaked deals at 10.4
percent, Asia Pacific (APAC) had the second highest average rate of
leaked deals at 7.6 percent and North America (NA) had the third
highest average rate of leaked deals at 6.0 percent. However, since
2014, this trend has reversed: in each of the last three years, the
rate of deal leaks in NA and APAC has been higher than in EMEA. The
rate of deal leaks in EMEA and APAC has increased in each of the
last two years, whereas in NA, after rising each year from 2013 to
2015, it fell sharply in 2016. The APAC region had the highest rate
of deal leaks in 2016, at 9.7 percent.
M&A deal leaks by industry sector
Worldwide, the top three sectors for deals leaks in 2016 were
Consumer, Retail and Real Estate. The Real Estate sector, which has
the highest long-term average rate of deal leaks, dropped to 3rd
place in 2016 and was replaced by the Consumer sector, which
increased its rate of deal leaks by an astonishing 7.8 percentage
points to 15.5 percent. This is the highest worldwide rate of deal
leaks of any sector in the past eight years. Worldwide, the bottom
three sectors for deal leaks in 2016 were Healthcare, Energy &
Power and Industrials.
Why do M&A deals leak?
As our report shows, there appears to be one clear perceived
benefit of leaking deals: higher target takeover premiums resulting
in higher valuations, as a result of increased competition among
acquirers for targets in leaked deals. This has been true in each
of the eight years analyzed for this report: from 2009-2016, the
median takeover premium for leaked deals was 47 percent vs. 27
percent for non-leaked deals, a difference of 20 percentage points.
To quantify this, in 2016 the difference in the median target
takeover premium for leaked deals compared to non-leaked deals was
US$21 million, i.e., an average of an extra US$21 million accrued
to the shareholders of the targets in deals that leaked.
Leaked deals are also associated with a higher rate of rival
bids for the target than non-leaked deals: from 2009-2016, 6.5
percent of leaked deals attracted one or more rival bids for the
target compared to 5.8 percent of non-leaked deals.
There is also evidence that leaked deals have higher completion
success rates: In the last three years (2014-2016), the worldwide
completion success rate for leaked deals has been almost 5 five
percentage points higher than for non-leaked deals.
These results could point to one other perceived benefit of
leaking a deal – it potentially leads to a better match between
acquirer and target. Leaking a deal may 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 for leaked deals) and therefore
also the acquirer who has the greatest incentive to complete the
deal.
The influence of regulatory enforcement against deal
leaks
In 2016, the US Securities and Exchange Commission (SEC) brought
a record 548 standalone or independent enforcement actions,
obtaining judgements and orders totalling more than US$4 billion in
disgorgement and penalties1. The SEC also charged 78 parties with
insider trading in 2016, compared to 87 parties in 20152. As our
report shows, the rate of deal leaks in the US dropped from 12.6%
in 2015 to 9.8% in 2016, which may be a result of the SEC’s
enforcement strategy.
Elsewhere, fines issued by the UK’s Financial Conduct Authority
(FCA) were the lowest since the financial crisis, down by 98% from
£905 million in 2015 to £22m in 2016.3 But according to the FCA’s
own data, it opened a record number of insider trading cases in
2016.4 Hong Kong, which recorded the second highest average
percentage of deal leaks from 2009 to 2016, dropped to fourth place
in 2016 with its lowest level of deal leaks (10%) since 2012. In
its annual report for 2015-2016, Hong Kong’s Securities and Futures
Commission (SFC) detailed 107 criminal charges against 15
individuals and five corporations. Total investigations rose by 12%
and the number of investigations for insider trading grew by 20%
from the previous year5.
Is leaking deals becoming less attractive?
In 2016, targets in leaked deals achieved a median takeover
premium of 38 percent vs. 26 percent for non-leaked deals, a
difference of 12 percentage points. This was a 60 percent reduction
compared to 2015, when targets in leaked deals achieved a
30-percentage point higher takeover premium.
Also, in 2016 the rate of rival bids for leaked deals and
non-leaked deals was almost the same (in fact, non-leaked deals had
a marginally higher rate of rival bids for the target than leaked
deals).
So, with the perceived benefits of leaking deals reducing in
2016, and regulatory enforcement against market abuse continuing to
increase, could the appeal of deal leaks be waning?
Philip Whitchelo, Vice President of Strategy and Product
Marketing at Intralinks, a business of Synchronoss Technologies,
comments on the findings: “The rate of deal leaks in markets where
leaking was rampant a decade ago, such as the UK, has reduced
considerably: a reflection of new regulations against market abuse
and much stricter regulatory enforcement. Countries such as India
and Hong Kong, which have comparatively high levels of deal leaks,
are also making more efforts to tackle market abuse and insider
trading. Overall, against the perceived benefits, those leaking
deals must also weigh the risks, and those benefits appear to have
reduced in 2016.”
Professor Scott Moeller, Director of the M&A Research Centre
at Cass Business School also comments: “There will always be
reasons why a target company may see a benefit to leaking a deal,
and it is therefore unlikely that the level of deal leakage will
ever be at - or near - zero. However, it is encouraging to see that
the percentage of deals that leak is remaining largely flat, and at
levels below where it was a decade ago.”
Download the report
For more information on these findings, download the 2017
Intralinks Annual M&A Leaks Report here.
Methodology
M&A transaction data for announced deals during the period
1st January 2009 to 31st December 2016, share price and index price
information were sourced from Thomson Reuters. The criteria for
inclusion in the sample were that the target must be an entity
listed on a public stock exchange, that the transaction must
involve the acquisition of majority control of the target and that
the target's equity must have a sufficient trading history for its
returns to be calculated. The final total sample of deals for the
period 2009-2016 was 5,997. A transaction was identified as
involving a leak of the deal prior to its public announcement using
the event study methodology, which compares the cumulative daily
returns of the target in the period from -40 to -1 days prior to
the public announcement of the deal with its expected returns. The
target's expected returns are calculated using a linear regression
model of the target's returns during a “normal” trading period
against the market return. A transaction was identified as
involving a leak of the deal if the cumulative daily returns of the
target in the period -40 to -1 days prior to the public
announcement of the deal was statistically significantly different
compared to its expected returns, at the 95% confidence interval
for a normal distribution - meaning that there is only a 5%
probability that the target's observed returns compared to its
expected returns would occur in a random distribution of data, i.e.
would be due to chance. Unless otherwise indicated, all references
to the region or country location of the target refers to the
target's primary listing location. The total number of leaked deals
for the entire period was 462 out of the total number of deals of
5,997.
__________
1
https://www.sec.gov/news/pressrelease/2016-212.html
2
https://www.sec.gov/news/pressrelease/2015-245.html
3
http://www.cityam.com/256128/fca-fines-plummet-2016-epidemic-problems-wind-down-say
4
https://www.bloomberg.com/news/articles/2017-04-20/insider-trading-cops-roar-as-u-k-fca-probes-reach-10-year-high
5
http://www.sfc.hk/web/EN/files/ER/Annual%20Report/SFC_AR2015-16_Eng.pdf
About Cass
Cass Business School, which is part of City, University of
London, is a leading global business school driven by world-class
knowledge, innovative education and a vibrant community. Located in
the heart of one of the world's leading financial centres, Cass has
strong links to both the City of London and the thriving
entrepreneurial hub of Tech City. It is among the global elite of
business schools that hold the gold standard of triple-crown
accreditation from the Association to Advance Collegiate Schools of
Business (AACSB), the Association of MBAs (AMBA) and the European
Quality Improvement System (EQUIS).
For further information, visit www.cass.city.ac.uk or on Twitter
follow @cassbusiness.
About Intralinks
Intralinks, a Synchronoss business, supports high-stakes
financial transactions, partnership negotiations and strategic
initiatives like capital raising and investor reporting. We allow
our users to collaborate on high-value deal documentation across
teams, customers, prospects, counterparties and regulators. With
over $31.3 trillion worth of financial transactions executed on our
platform, we support the entire deal lifecycle by streamlining
operations, reducing risk, improving client experience, increasing
visibility and better engaging deal participants. In our 21-year
history we’ve earned the trust and business of more than 99 percent
of the Fortune 1000. Intralinks was acquired by Synchronoss
Technologies in January 2017. For more information, visit
www.intralinks.com.
Forward Looking Statements
This document may include certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, but are not
limited to, plans, objectives, expectations and intentions and
other statements contained in this press release that are not
historical facts and statements identified by words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," “outlook” or words of similar meanings. These
statements are based on our current beliefs or expectations and are
inherently subject to various risks and uncertainties, including
those set forth under the caption "Risk Factors" in Synchronoss’
Annual Report on Form 10-K for the year ended December 31, 2016 and
other documents filed with the U.S. Securities and Exchange
Commission. Actual results may differ materially from these
expectations due to changes in global political, economic,
business, competitive, market and regulatory factors. Synchronoss
does not undertake any obligation to update any forward-looking
statements contained in this document as a result of new
information, future events or otherwise.
Trademarks and Copyright
"Intralinks" and the Intralinks' stylised logo are the
registered trademarks of Intralinks, Inc. © 2017 Intralinks,
Inc.
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For IntralinksJustin Ordman, 617-237-0922justino@rlyl.com