M&A Leaks Fall to Lowest in Six Years in Regulatory Crackdown

  • Deals in EMEA showed highest level of leaks in six-year study
  • Targets in leaked deals achieved significantly higher premiums

The number of times investors found out about takeovers before deal announcements fell to the lowest level in six years in 2014 as stronger regulation discouraged gossip, according to a report that examines suspicious trading.

Last year, 6 percent of acquisitions were leaked, down from 8.8 percent the year before, Intralinks Holdings Inc. said in its M&A Leaks Report Thursday. On average, 7.4 percent of deals were slipped to investors early from 2009 to 2014, said the company, which makes software to manage deals and help companies communicate confidentially.

Deals in Europe, the Middle East and Africa showed the most dramatic improvement during the study. While the region had the highest average rate of leaks over the course of the six-year study at 9.2 percent, that fell to 3.8 percent in 2014, the lowest amount last year of the regions studied, Intralinks said.

“In future, we will see regulators shift towards a greater use of data and quantitative analytics to uncover market abuse and also criminal activity such as insider trading,” said Philip Whitchelo, vice president of strategy and product marketing at Intralinks. “As regulators get more sophisticated in the way they use technology, we expect deal leaks to continue to drop.”

Businesses are tightening internal governance, reacting to regulations such as the U.K.’s Takeover Panel rules, which can force companies that are the subject of deal rumors to publicly acknowledge their interest or walk away from talks for six months. Leaks also increase the time it takes to complete a deal, Intralinks said.

There has also been a growing focus on penalizing individuals and executives rather than fining companies, and a significant rise in enforcement actions and fines for market abuse, the study said. For the biggest economies, such as the U.S. and Europe, the size of the average fine has increased by 18 times in the past five years.

Intralinks found suspected leaks by looking at significant share trading in the days leading up to a bid announcement. The report, analyzed by City University’s London Cass Business School, looked at a sample of 4,475 change-of-control transactions.

Still, talk around a transaction before its announcement can pay off. The findings of the report showed that targets in leaked deals achieved “significantly higher takeover premiums” than those in non-leaked deals. The median premium paid in takeovers that were talked about beforehand was 51.2 percent compared to 29.2 percent for deals that were kept quiet. That may be because the buzz attracted rival bidders, the report said.

North American deals had the lowest average leak rate during the study at 6.3 percent. The worst countries were Hong Kong, at 18.6 percent, India, at 15.2 percent, and the U.K. at 14.1 percent. Australia was the most confidential at 3.5 percent.

“Sellers and their advisers are clearly taking the issue of pre-announcement deal confidentiality much more seriously when compared to a few years ago,” said Scott Moeller, director of the mergers and acquisitions research center at Cass. “The various market abuse scandals have caused reputational damage and resulted in significant corporate fines and even convictions of individuals.”

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