Leaking information about mergers and acquisitions (M&A) boosts the value of a deal by an average of $21 million (£16.6 million), according to new research carried out by content management company Intralinks and Cass Business School.
A report from the pair analysed deals between 2009 and 2016, and found that the median takeover premium for leaked deals was 47%, compared with 27% for non-leaked deals.
The higher premium is based on higher valuations, which are prompted by increased competition. In short, once news of a deal leaks it becomes more like an auction, with rival companies bidding each other up.
Deals leaked this year include Standard Life and Aberdeen Asset Management’s £11 billion merger and Walmart’s purchase of online retailer Bonobos for $310 million (£244.8 million).
Other significant findings from the report, published on Thursday, include:
- 8.6% of deals worldwide were leaked in 2016, the same as in 2015 but up from 6% in 2014. Leaks rose year-on-year in Europe but fell in North America, while Asia-Pacific had the highest rate of leaked deals in 2016, at 9.7%. Globally, the consumer sector saw the highest rate of leaked deals across the eight years, hitting 15.5% in 2016. The completion rate for leaked deals was almost 5 percentage points higher than for non-leaked deals between 2014 and 2016. Of the top ten countries with the most M&A activity, India has consistently seen the highest percentage of leaks.
Leaking confidential information about M&As before the possibility of a transaction is officially made publiccan lead to heavy fines. Leaks have been linked to insider trading, and global regulators have been working to clamp down on this underhand activity.
In both 2015 and 2016, the US Securities and Exchange Commission (SEC) collected fines of more than $4 billion (£3.1 billion) for disgorgement – or profit obtained illegally. The percentage of leaked deals in the US also fell between 2015 and 2016.
Fines by the UK’s Financial Conduit Authority have jumped by over 700% so far in 2017 compared to last year, going from £22,216,446 to £163,230,322. However, this remains significantly below the huge spike in fines in 2014 and 2015, which totalled £1.47 billion and £905 million respectively. The drop is likely due to investigations coming to an end, rather than more relaxed attitude to law enforcement. The UK has seen a significant improvement in the percentage of leaks since 2009, going from 12.5% to 7% in 2016.
Philip Whitchelo, Vice President of Strategy and Product Marketing at Intralinks, said in a statement: “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.”
The number of leaked deals declined between 2009 and 2014, but has risen again over the last two years. Details of 462 deals were leaked over the eight-year period, out of a total of 5,997.