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The highest proportion of failed acquisitions since the start of the financial crisis took place in 2016, according to a long-term study by IntraLinks and Cass Business School. More than 7% of M&A deals failed to go through last year.

The study found that the failure rate for publicly owned targets was significantly higher than for private targets. It also identified several predictors of failure that might be helpful to dealmakers going forward.


Abandoned Acquisitions

Appropriately named “Abandoned Acquisitions,” the IntraLinks/Cass study, which was carried out by the M&A Research Centre at City, University of London’s Cass Business School analyzed 78,565 M&A transactions that were announced between 1992 and 2016.

The study investigated 30 deal-specific, company-specific and macro-level financial and non-financial factors to determine which, if any, were statistically significant predictors of deal failure.

Public Target Findings

The failure rate for public company targets was 11.1% compared to just 5.7% for private targets. Five factors influenced the failure rate: target termination fees, target and acquirer size, the target’s initial reaction to the deal announcement, the number of financial and legal advisers retained by the acquirer for the deal and the type of consideration offered by the acquirer to the target company’s shareholders.

Specifically, the study found, target termination fees work. When they are absent, the probability of failure goes up. When the target is larger than the acquirer the failure rate increases. When the target perceives the deal as hostile, the likelihood of a failed acquisition increases. The use of a professional legal and financial advisory team increases the likelihood the deal will go through while the absence of professionals increases the failure rate. Finally, the method of payment preferred and the one that most often results in a successful acquisition is one that involves cash.


Impact of Unexpected Events

Sometimes a deal falls through because of factors beyond the control of the participants. Some such events are more consequential than others. The events examined in this study were the September 2001 terrorist attacks in the U.S., the Lehman Brothers bankruptcy in September 2008 and the June 2016 UK Brexit referendum vote.

When Lehman Brothers collapsed, 19% of announced deals failed to complete. Typical seasonally-adjusted deal failure would have been 9.6%. The terrorist attacks in the U.S. September 11, 2001 and the June 23, 2016, UK Brexit referendum produced no increase in deal failure rates, compared to their seasonally adjusted averages.

To see the complete study, go here.

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