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New M&A Study Examines Financial Cost of Deal Leaks
The American Lawyer
June 05, 2008
If loose lips sink ships, then deal leaks cost corporate clients both time and money. At least that's what a new study commissioned by New York-based online workspace provider IntraLinks and London's Cass Business School says.
Conducted by Cass professors Scott Moeller and Omiros Sarikas, the study examines more than 350,000 M&A deals between 1994 and 2007. Of the deals that were subject to leaks, only 49 percent closed, compared with a 72 percent completion rate for deals in which no leaks occurred.
According to an early summary of the study obtained by The Am Law Daily, even on the completed deals that were prematurely announced, premiums paid by the winner on leaked deals were on average 13 percent lower than on non-leaked transactions.
"Leaks have a large impact on these transactions," says Matthew Porzio, vice president for product management at IntraLinks. "There's always been this concern that information leaks result in longer time frames and more work, which is something you'll hear from deal lawyers, and that this study confirmed."
The IntraLinks-Cass study says the average time it takes to complete a deal with no leaks is 62 days. That time frame increases by 70 percent -- for a total completion time of 105 days -- if a deal is announced prematurely.
"That puts a lot of stress on the deal -- you're going over two reporting quarters for some of these companies," says Porzio. "Company performance is already strained because they're focused on [completing] these transactions, and you don't want to have to keep reporting new quarterly results of the bidders in the process."
Coupled with the volatility in the credit markets, leaks can prove doubly damaging. The longer the deal is out there, Porzio says, the greater the likelihood that it will divert attention away from the process. And the lawyers don't necessarily benefit from the extra work. "Even though law firms are getting paid, they also want successful deals to close and point to the hard work that got people over the goal line," Porzio says.
One solution for leaks lies in adopting secure online data management programs, the study suggests. "You can never prevent people from speaking about deals that they're working on but using a virtual data room allows you to track who is looking at what and when," Porzio says. It just so happens that IntraLinks sells such services.
