7 Questions About M&A Deal Leaks: Answered

Leaks in mergers and acquisitions (M&A) deals can significantly impact negotiations. Every year, SS&C Intralinks and the M&A Research Centre (MARC), Bayes Business School, City, University of London, partner to study how leaks influence critical factors such as closing rates, completion times, premiums and bidding competition.

At our recent live event in London, MARC’s Scott Moeller answered questions about the 2024 SS&C Intralinks M&A Leaks Report.

Why aren’t leak rates dropping off?

The percentage of deals leaked before announcement has remained consistent over the past decade. While the regulatory, financial and legal risks remain, so do the financial incentives. According to our research, however, takeover premiums were the only area in which leaks made a significant impact. Closure rates, bidding competition and completion times did not prove advantageous for sellers in leaked transactions.

How can deal teams prevent leaks?

Unsurprisingly, deals with longer timelines are more likely to be leaked. The same can be said for deals involving greater numbers of stakeholders. In the age of social media, rumors and leaked information travel faster than ever — and each additional party brought into the data room represents an additional disclosure risk. Using the right collaboration technology and following best practices to control the flow of information is critical to keeping negotiations on track.

Why did leaked deals take longer to complete?

While deal timelines for leaked and non-leaked transactions are identical across the data sample from 2009-2023, the gap has widened over the past three years with leaked deals taking longer to close. There are many ways in which leaks add complexity to the deal process. M&A is an industry built on trust, and leaks can cause deal participants to become concerned about the integrity of the transaction. In some cases, leaks attract more interested parties, which increases the seller’s due diligence workload.

How does board diversity impact leak rates?

Throughout our research partnership, Intralinks and Bayes have taken a novel approach to researching M&A leaks. In our previous report, Gender Diversity and Dealmaking 2022, we examined the correlation between board diversity and pre-announcement disclosures. We found that deal leaks were less likely to occur in companies with diverse boards. While it’s difficult to identify a causal link, the correlation was clear: Acquisition targets with more than 30 percent female executive board members experienced approximately two percent fewer leaks (8.6 percent vs. 6.7 percent).

Why are some jurisdictions leakier than others?

South Korea, the U.S. and Hong Kong were the three leakiest jurisdictions in 2023. The U.S.’s four percentage-point jump in leak rate between 2021 and 2023 could account for its joining the top three, which has historically been South Asia-based. This is likely due to cultural and regulatory differences in attitudes toward leaks.

Which sectors saw the most leaks?

Industrials (10.5 percent), Technology, Media and Telecommunications (TMT) (9.9 percent), and Healthcare (9.6 percent) were the sectors with the most leakage in 2023. What accounts for the high prevalence of leaks in these industries? These are very active sectors in general, with TMT and Healthcare seeing a high volume of M&A activity. With more deal activity comes more opportunities for leaks to take place. Conversely, Real Estate, which has been historically leaky, has seen a drop-off in both dealmaking activity and early disclosures.

Why do leaks still happen?

Although illegal and fraught with risk, leaks remain a reality of M&A dealmaking. Our data sample dating back to 2009 shows approximately one in 12 deals were disclosed before announcement. Intentional or unintentional, early disclosures can confound negotiations and erode trust between buyers and sellers. Even so-called controlled leaks yield unpredictable results.

Conclusion

Managing high-stakes deals is becoming increasingly challenging. As business models evolve and expand across geographies, transactions are becoming more complex and require greater stakeholder involvement. In an age of rapid digital communication, word travels fast and savvy market observers are becoming adept at looking for clues on imminent transactions. At the same time, regulatory scrutiny around leaks is intensifying, putting even greater pressure on dealmakers to manage information securely.

Understanding why leaks happen and how they impact the deal process is essential to fostering a risk-aware culture and safeguarding the flow of information. For a data-driven analysis of leaks, their impact on deal outcomes, and leak activity by region and sector, read the 2024 SS&C Intralinks M&A Report.