Pre-annoucement M&A activity and its effect on outcomes

Intralinks, the leading global technology provider of inter-enterprise solutions for secure information sharing, content management and collaboration, asked researchers at the M&A Research Centre (MARC), Cass Business School, City University London, to look into the relationship between the pre-announcement due diligence phase and key M&A deal outcomes for both acquirer and seller.

MARC examined a data set consisting of due diligence metadata on M&A transactions which used the Intralinks virtual data room (VDR) platform between 2008 and 2012 and matched a sample of these to publicly-announced M&A transactions from the Thomson Reuters SDC Platinum database, resulting in a final data set of 519 global M&A transactions. This unique data set allowed the due diligence metadata to be compared with variables from the M&A deals, such as deal type, size, price and performance, to determine if any significant relationships could be established. In conjunction with this research, interviews were conducted by Mergermarket with 30 M&A professionals, including lawyers, accountants and corporate executives, to gain first-hand insights into the way in which the due diligence process can shape the outcome of a deal.

The study reached four major conclusions:

  • The longer the period of due diligence, the higher the likelihood of the deal's success for the acquirer, as measured by the acquirer's long term post-transactions total shareholder returns.
  • Deals involving a longer due diligence period resulted in lower takeover premiums paid by the acquirer, thereby conferring an advantage to the buyer but a disadvantage for the seller.
  • Due diligence periods for public companies and larger targets were significantly shorter than for private companies or smaller targets, attributed to greater transparency and resources.
  • Most M&A leaks occur far into the due diligence phase, are deliberate, and are intended to confer an advantage to the leaker in an attempt to push negotiations in their favour.

The full report was recently published by Intralinks and is available for download here.

Other research articles produced by MARC (Cass' M&A Research Centre) are available for download on Cass Knowledge.