abandoned acquisitions: why do some deals fail?...2001/09/11 · © intralinks 2017 | all rights...
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© Intralinks 2017 | All Rights Reserved | Confidential Use Only 1
A study by the M&A Research Centre
at Cass Business School and Intralinks
Abandoned Acquisitions:
Why Do Some Deals Fail?
Philip Whitchelo
VP Strategy & Product Marketing, Intralinks
© Intralinks 2017 | All Rights Reserved | Confidential Use Only 2
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Notice
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Failed deal
completions impose
significant deadweight
and reputational costs
on acquirers/targets
Which factors are
statistically significant
predictors of deal
failure?
What can acquirers
and targets do to
increase their chances
of successful deal
completion?
10.3
%
8.2
%
6.5
% 7.2
%
6.5
%
5.9
%
5.8
%
5.9
%
5.7
%
5.5
%
4.7
%
4.1
% 4.8
%
3.6
% 4.8
%
5.3
%
8.9
%
6.4
%
5.3
%
4.7
%
4.5
%
4.1
%
5.1
% 6.2
% 7.2
%
0%
2%
4%
6%
8%
10%
12%
Worldwide annual deal failure rate, 1992-2016
1992-2016 Average = 5.7%
Deal failure rates are rising
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What we did
5
1992-
201625 years of
data
78,565deals
$50mminimum
acquirer /
target
revenues or
deal size
102,396acquirers
and
targets
5M&A cycles
Regression
analysis of
30factors
40corporate,
PE & legal
interviews
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What we did
6
1992-
201625 years of
data
78,565deals
$50mminimum
acquirer /
target
revenues or
deal size
102,396acquirers
and
targets
5M&A cycles
Regression
analysis of
30factors
40corporate,
PE & legal
interviews
2,363deals
2,469acquirers
and
targets
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The most significant factors behind failed deals
7
Public target M&A Private target M&A
Target break fees Size
Size Acquirer liquidity
Initial target reaction Deal consideration
Number of acquirer advisers Acquirer break fees
Deal consideration
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Public target
deals have
significantly
higher deal failure
rates
The public status
of the target is #3
most significant
factor in
predicting deal
failure
11.7%
9.6% 9.9%
16.0%
10.1%
3.5%2.8% 2.5%
5.2%4.2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Worldwide average deal failure rate, by public/private target status, 1992-2016
Public target
Private target
Public targetaverage = 11.1%
Private targetaverage = 3.7%
Public vs. private target M&A
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Target break fees
reduce the average
probability of deal
failure by 12%
Acquirer termination
fees (reverse break
fees) have NO
significant effect on
public target deal
failure but DO
reduce private
target deal failure
4.9%5.6%
3.8%
8.0%
4.0%
13.9%
11.3%12.4%
18.5%
12.2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Worldwide average public target deal failure rate, by target termination fee status, 1992-2016
Termination fee
No termination fee
Termination feeaverage = 4.7%
No termination feeaverage = 13.4%
Break fees work
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Deals involving
larger targets
increase the
probability of deal
failure
Larger acquirers
have a reduced
probability of deal
failure
“Transformational”
deals increase the
probability of deal
failure
4.1%
9.6%
12.7%14.4%
19.0%17.1%
0%2%4%6%8%
10%12%14%16%18%20%
Worldwide average deal failure rate by target sales to acquirer sales ratio, 1992-2016
1992-2016 Average = 6.9%
Size matters
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Hostile and
unsolicited deals
increase the
probability of deal
failure
An initial hostile or
unsolicited reaction
by the target
increases the
probability of the
acquirer’s bid failing
by 32% and 41%,
respectively
10.4%
57.2%
14.4%
24.3%
11.4%
63.1%
0%
10%
20%
30%
40%
50%
60%
70%
Worldwide average public target deal failure rate by target initial reaction, 1992-2016
1992-2016 average = 16.1%
Unwanted attentions
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Higher numbers
of acquirer
financial and legal
advisers reduce
the probability of
deal failure
The numbers of
target financial
and legal advisers
has NO effect on
the probability of
deal failure
Good advice
Adding one extra acquirer financial adviser
reduces the probability of deal failure by 11.5%.
Adding one extra acquirer legal adviser reduces
the probability of deal failure by 8.0%
© Intralinks 2017 | All Rights Reserved | Confidential Use Only 14
Deals where cash
was the only form
of consideration
offered to the
target’s
shareholders are
less likely to fail
2.8% 2.9%
2.1%
3.7%
2.9%
4.3%
3.1% 2.9%
5.9%
4.9%
0%
1%
2%
3%
4%
5%
6%
7%
Worldwide average private target deal failure rate by consideration method, 1992-2016
Cash only Other Average = 4%
Cash is king
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More liquid
acquirers have a
lower probability
of deal failure8.9%
6.4%
4.8%
3.5% 3.7% 4.0%
0%
2%
4%
6%
8%
10%
Worldwide average private target deal failure rate by acquirer current assets to current liabilities ratio,
1992-2016
1992-2016 Average = 4.0%
Stay liquid
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No increase in
deal failure rates
9.3
%
0%
5%
10%
15%
20%
Worldwide seasonally-adjusted deal failure rate compared to September 11, 2001 period
Seasonally-adjusted average = 9.7%
Unexpected external events: September 11, 2001
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Worldwide deal
failure rate spiked
to 19% following
the collapse of
Lehman Brothers
in September
2008
19
.0%
0%
5%
10%
15%
20%
Worldwide seasonally-adjusted deal failure rate compared to Lehman Brothers collapse period
Seasonally-adjusted average = 9.6%
Unexpected external events: Lehman Brothers
bankruptcy
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No increase in
deal failure rates
CONCLUSION:
financial shocks
affect deal
completions,
political shocks
do not 0.0
%
0%
5%
10%
15%
20%
25%
30%
UK target seasonally-adjusted deal failure rate compared to Brexit referendum vote period
Seasonally-adjusted average = 8.3%
Unexpected external events: Brexit referendum vote
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Align acquirer/seller interests - negotiate break fees
Transformation is risky - strategic acquisitions may be a better route to growth
Take time to woo your target – unsolicited/hostile approaches more likely to fail
Pay for the right advice
Keep a healthy balance sheet - cash is king
Conclusions – how to avoid failed deals
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Appendix
21
© Intralinks 2017 | All Rights Reserved | Confidential Use Only 22
Deal failure rates by acquirer/target nation1
4.9
%
14.4
%
10.9
%
10.4
%
10.0
%
9.0
%
8.4
%
7.1
%
6.8
%
6.2
%
5.1
%
4.4
%
4.2
%
4.0
%
2.5
%
0%2%4%6%8%
10%12%14%16%
Deal failure rates by acquirer nation1992-2016
Average = 7.9%
12
.8%
11.8
%
8.9
%
8.5
%
7.7
%
6.4
%
6.3
%
4.9
%
3.9
%
3.9
%
3.6
%
3.6
%
3.0
%
2.4
%
2.2
%
0%
2%
4%
6%
8%
10%
12%
14%
Deal failure rates by target nation1992-2016
Average = 6.0%
© Intralinks 2017 | All Rights Reserved | Confidential Use Only 23
Deal failure rates by acquirer-target region
APAC EMEA LATAM NA TOTAL
APAC 7.3% 4.7% 18.6% 6.1% 7.1%
EMEA 4.7% 4.2% 6.0% 4.1% 4.2%
LATAM 3.6% 2.4% 4.3% 5.0% 4.0%
NA 4.2% 4.6% 12.7% 6.6% 6.4%
TOTAL 7.1% 4.2% 5.4% 6.3% 5.7%
Acquirer region
Target
region
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Deal failure rates by target industry and region
Target industry
Materials Real Estate
Energy &
Power Financials TMT Healthcare Industrials
Consumer
& Retail TOTAL
Ta
rge
t re
gio
n
APAC10.4% 7.9% 8.6% 7.8% 6.9% 6.9% 6.1% 5.2% 7.1%
EMEA4.6% 5.8% 5.6% 6.4% 3.8% 3.3% 3.7% 3.0% 4.2%
LATAM6.8% 2.8% 3.4% 3.5% 4.4% 0.0% 3.2% 3.9% 4.0%
NA8.0% 6.6% 6.1% 5.2% 6.1% 6.3% 6.6% 7.7% 6.4%
TOTAL7.7% 6.8% 6.3% 6.2% 5.5% 5.5% 5.1% 4.8% 5.7%
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Questions?
25
Philip Whitchelo
VP, Strategy & Product Marketing
Tel: +44 207 5495207
Mobile: +44 7584 170652
E-mail: [email protected]