Dealmakers Let More Secrets Slip as Leaks Lead to Higher Offers

  • Almost 9% of deals leaked in 2015, according to a report
  • Leaks in North America reached a seven-year high in 2015

Keeping deals under wraps has become increasingly difficult, despite tougher regulation and enforcement by financial services authorities.

The number of acquisitions leaked ahead of a public announcement rose to 8.6 percent in 2015 from 6 percent a year earlier, according to a report by Intralinks Holdings Inc., which provides secure document-sharing and cloud services, and London’s Cass Business School.

The motivation to let details slip is clear. When the market learns about a deal ahead of an official statement, it attracts a greater number of bids and higher premiums than those that stay under wraps, according to the report. That’s even as regulators, including the U.S. Securities and Exchange Commission and the Hong Kong Securities and Futures Commission, stepped up enforcement and financial penalties to prevent market abuse in 2015.

“For some the potential benefits of leaking a deal still appear to outweigh the risks,” according to Philip Whitchelo, vice president of strategy and product marketing at Intralinks. “Regulators are placing an increasing focus on new regulations to tackle market abuse and enforcing penalties for financial misconduct. But our data shows this is not translating into fewer deal leaks.”

The median premium for targets that leaked was 53 percent in 2015, compared with 24 percent for non-leaked transactions, according to the report. Deals that the market learned about early in 2015 attracted rival bids 6.4 percent of the time, compared to 4.4 percent for those that stayed secret.

Leaky Sectors

The report, which looked at more than 5,000 deals announced from 2009 to 2015, measured significant trading in target companies, which can indicate that information is leaking about a deal.

Real estate, health care and energy and power were the sectors with the highest rate of leaks, the report showed. They grew in all regions except Latin America, with North America reaching a seven-year high at 12.6 percent. That compares with 7.2 percent for Asia Pacific and 5.9 percent in Europe, the Middle East and Africa. The top three countries were India, Hong Kong and the U.S.

Still, the risks for blabbing are likely to grow, especially as regulators get tougher, according to Scott Moeller, director of the M&A Research Centre at Cass. That will lead to fewer instances in the long term, he said.

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