Abandoned Acquisitions: Why Do Some Deals Fail?...2001/09/11 · © Intralinks 2017 | All Rights Reserved | Confidential Use Only 8 Public target deals have significantly higher deal

© 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


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Notice



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

© Intralinks 2017 | All Rights Reserved | Confidential Use Only

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


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


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


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



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


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


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


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%


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


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



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


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


Unexpected external events: Lehman Brothers

bankruptcy


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


Unexpected external events: Brexit referendum vote


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

© Intralinks 2017 | All Rights Reserved | Confidential Use Only© Intralinks 2017 | All Rights Reserved | Confidential Use Only

Appendix

21


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%


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


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]

Abandoned Acquisitions: Why Do Some Deals Fail?...2001/09/11 · © Intralinks 2017 | All Rights Reserved | Confidential Use Only 8 Public target deals have significantly higher deal

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