Merger and acquisition deals are supposed to be secret – involving only the acquiring company and the target company. Sometimes word about the specifics of a deal get out, either intentionally or unintentionally.
IntraLinks, a subsidiary of Synchronoss Technologies, Inc. (NASDAQ: SNCR), conducts an annual study in collaboration with the M&A Research Centre at Cass Business School, London that analyzes and reports on deal leaks. The most recent “2017 IntraLinks Annual M&A Leaks Report,” reveals that although M&A leaks in 2016 remained stable compared to the prior year, overall the 8.6% leak rate probably represents a new normal versus the 8-year average of 7.7%, according to IntraLinks VP of Strategy and Product Marketing, Matt Porzio, who spoke with WooTrader about the study.
Digging A Little Deeper
In an effort to peel back some of the individual statistics brought out in the study, WooTrader asked Porzio about the likely causes for the wide disparity in North America between a leak rate of 12.6% in 2015 versus one of 8.5% in 2016. Noting that North America is heavily weighted toward the U.S., Porzio indicated that the 12.6% leak rate in 2015 was actually outside the norm. The 8.5% tallied in 2016 was closer to the new normal. The main cause for the rise in leaks in 2015, Porzio explained, may have had more to do with the sheer number of M&A deals in that period, especially in the U.S.
“In addition,” he said, “the actions of the SEC and regulatory bodies around the globe definitely had an effect (in 2016). Even if it hasn’t been direct, people are starting to tighten things up just because they are worried about the regulations.”
Enforcement Versus Self-Policing
According to Porzio, the enforcement actions of regulatory bodies have been accompanied by more and better self-policing by banks and companies engaged in M&A activities. As for the role of regulatory enforcement in the process, Porzio said, “I think it’s dictating it (self-policing). Think about a large financial institution. Even though the fine may not be considered harsh, it’s much more about reputational risk.”
Porzio added that he knows some of the ethics and compliance officers in some of the top banks in the world and “this is something they are literally spending 2-day off-sites with their M&A teams, to coach them and have them advise and coach their clients.”
Looking At Sectors
The part of the IntraLinks study that deals with leaks within sectors shows a lot of change from year to year. One of the big ones was the consumer sector which showed a 15.5% leakage rate in 2016 versus 7.7% the prior year. Porzio says one factor that presses dealmakers to even consider leaking is a need to ‘juice’ the deal due to low evaluations.
“Some of those consumer evaluations have kind of backed off,” he said. “You could see someone saying ‘I’ve got to optimize and maximize value for this deal. I know I can create some last minute competitive tension (by leaking).’”
Attitudes Moving Forward
“At the end of the day,” said Porzio, “while leaking shows an economic benefit, if you are that deal that leaks and you are personally held responsible, that’s a black mark. The risk of that to the economic upside, I think people are starting to be educated to the fact that’s probably not worth it.”
“There are ways to create a naturally competitive environment,” he said. This, Porzio says, is changing attitudes that used to be, “if I leak, I always gain.” Now, Porzio says, people are realizing if they run a good process they will maximize value as well.