- Worldwide, more than 7% of announced M&A deals failed to complete last year, the highest since 2008
- Asia-Pacific region has the highest rate of failed deals globally, at more than 13% last year
- China, Australia and Singapore among the countries with the highest rates of failed deals over past 25 years
- Long-term study by Intralinks and Cass Business School reveals significant predictors of deal failure
SYDNEY, AUSTRALIA – Media OutReach – 30 November 2017 – New research published by Intralinks and Cass Business School has found that, following an increase over each of the previous three years, the proportion of worldwide failed acquisitions reached an eight-year high in 2016. When compared globally, the Asia-Pacific region recorded the highest average deal failure rate in 2016, at 13.2%. Over the past 25 years, China, Australia and Singapore are among the countries with the highest proportion of failed deals. Japan, India and South Korea are among the countries with the lowest rates of deal failure.
Worldwide, 7.2% of M&A deals announced last year failed to complete, the highest rate of worldwide deal failures since the start of the global financial crisis in 2008, itself the highest since 1995, and significantly higher than the overall long-term average deal failure rate of 5.7%. The Materials, Real Estate and Energy & Power sectors have the highest rates of deal failure, whereas the Consumer, Industrials and Healthcare sectors have the lowest.
These are some of the findings of “Abandoned Acquisitions”, a study carried out by the M&A Research Centre at City, University of London’s Cass Business School and Intralinks, the leading global provider of M&A deal management and secure content collaboration solutions.
Based on an analysis of 78,565 M&A transactions announced between 1992 and 2016, the study investigates 30 deal-specific, company-specific and macro-level financial and non-financial factors to determine which, if any, are statistically significant predictors of deal failure. The study then considers whether these predictors have changed over time.
- The failure rate for deals involving public company targets is significantly higher than for private targets. Since 1992, the long-term public target average failure rate was 11.1% compared to the long-term private target average failure rate of just 3.7%, and an overall average deal failure rate of 5.7%.
- The probability of failed deal completions for public targets is influenced by five significant predictors: target termination fees (break 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.
- The probability of failed deal completions for private targets is influenced by four significant predictors: the relative size of the target compared to the acquirer, the liquidity of the acquirer, the type of consideration offered by the acquirer to the target company and acquirer termination fees (reverse break fees).
- External financial shock such as liquidity, financing and banking crises appear to temporarily significantly increase the rate of failed deal completions, whereas external political shocks appear to have no impact.
The impact of catastrophic or unexpected events on deal failure
There are occasions when a deal may be derailed by matters completely beyond the control of the parties involved. However, some events take a greater toll than others.
The study looked at three global/regional events, which can be described as catastrophic and/or unexpected, to see the impact on deal failure rates for deals that had been announced, but not yet completed, in the three-month period leading up to each event. These events were: the September 2001 terrorist attacks in the US, the Lehman Brothers bankruptcy in September 2008 and the June 2016 UK Brexit referendum vote.
The study found that there was a sharp spike in the worldwide deal failure rate to 19% following the collapse of Lehman Brothers in September 2008. By contrast, the terrorist attacks in the US on September 11, 2001 and the June 23, 2016 UK Brexit referendum result saw no subsequent increase in deal failure rates, compared to their seasonally adjusted averages.
Commenting on the research
Philip Whitchelo, Vice President of Strategy and Product Marketing at Intralinks, comments on the findings of the research: “Failed deal completions impose significant deadweight and reputational costs on acquirers and targets. Our research, which identifies the most significant predictors of failed deals, will help both parties in a transaction to increase the likelihood of successful deal completion.”
Professor Scott Moeller, Director of the M&A Research Centre at Cass Business School, comments on the findings of the research: “This study is the most comprehensive ever conducted into this topic, and the only one to consider both public and private M&A on this scale. For the first time, we have a holistic account of the significant causes behind failed deal completions.”
Download the report
For more information on the research findings, download the full report here.
The sample for the study comprised M&A transactions worldwide announced during the period 1992-2016, which met the following criteria:
- The transaction involved a change of control of the target, where the acquirer owned less than 50% of the target prior to announcement and intended to acquire more than 50% of the target.
- The value of the transaction was at least US$50 million OR the sales of the acquirer in the last financial year prior to announcement were at least US$50 million OR the sales of the target in the last financial year prior to announcement were at least US$50 million.
- The transaction status, as determined by Thomson Reuters, is either completed or withdrawn (i.e., deals that were still pending were not considered).
Based on these criteria, the sample comprised 78,565 announced transactions involving 35,049 public and private acquirers and 73,268 public and private targets, making it the largest known study conducted into this topic and the only one to consider both private and public M&A on this scale.
The transaction and company data for this study were obtained from the Thomson One and Datastream databases, both from Thomson Reuters.
To determine which factors were significant predictors of deal failure, a regression model was built which included all the factors as independent variables. The dependent variable in the regression model is a dummy variable which is equal to one if the transaction fails to complete and zero otherwise.
Using the regression model, the study also identified the relative importance, or weighting, of the predictive factors in influencing the probability of deal failure, and these relative weightings are discussed in the report.
Following the completion of the research,
interviews were conducted with 40 M&A professionals worldwide from public
and private companies, private equity firms and legal advisory firms. In the
report, these interviewees offer their insights and provide context to the
About Cass Business School
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.
Intralinks supports high-stakes financial transactions, partnership negotiations and strategic initiatives across the globe. With over $34 trillion worth of financial transactions executed on its platform, Intralinks supports the entire deal lifecycle by streamlining operations, reducing risk, improving client experience, increasing visibility and better engaging deal participants. In its 20-year history Intralinks has earned the trust and business of more than 99 percent of the Global Fortune 1000. For more information, visit www.intralinks.com.
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