The year isn’t even over and there have already been some major M&A deal leaks of 2017. Mergers and acquisitions are highly sensitive transactions that demand the utmost in secrecy. Deal leaks regarding even potential negotiations can impact a sale price, cause confusion with staff or just kill a deal altogether. And when you’re talking about potentially billions of dollars and thousands of jobs at stake, there’s no margin for error in keeping information under wraps. But unfortunately, it’s not that easy.
There’s no shortage of instances where leaked information has thrown potential mergers into uncertainty. Just the other day, word came out that 21st Century Fox had been in negotiations to sell most of its assets to Disney. This drove the Fox stock higher by 10 percent, adding billions to a potential sale price. Soon after, the Wall Street Journal reported that “talks [were] no longer active.” And this is just one example of many. In fact, 8.5 percent of U.S. deals suffered information leaks, more than double the amount (3.6 percent) from just four years prior. On a global basis, 8.6 percent of deals leaked, nearly a record itself.
While the Disney/Fox deal may yet still get done, data shows “leaked deals” take longer to complete and come at a significantly higher takeover premium (38 percent for leaked vs. 26 percent for non-leaked). All this can throw operations and productivity into disarray as employees start wondering about job security.
“Leaked deals” take longer to complete and come at a significantly higher takeover premium (38 percent for leaked vs. 26 percent for non-leaked). “
2017 is shaping up to be a year of significant M&A deal leaks. Even though there is still roughly a month and a half to go in 2017, some major deals have been affected by leaks. Following are some of the top M&A deal leaks of 2017 thus far.
Kraft Heinz/Unilever: In February 2017, Kraft Heinz surprised everyone with a hostile takeover bid for Unilever. But according to Bloomberg, this wasn’t the initial plan. Just days after the announcement, the publication wrote, “Part of the reason Kraft Heinz’s $143 billion bid…never got off the ground was reportedly because word of the transaction seeped out to the public too soon.” They added that this impeded Kraft Heinz’s ability to negotiate a “friendly deal.” Within two days, the deal was dead.
“Part of the reason Kraft Heinz’s $143 billion bid…never got off the ground was reportedly because word of the transaction seeped out to the public too soon.”
Sprint/T-Mobile: In the highly competitive mobile phone carrier industry, everyone is chasing Verizon and AT&T, which are running neck and neck for market leadership. A potential merger between Sprint and T-Mobile would make this a three-horse race. Now this is a discussion that first got leaked in late 2013, and after numerous fits and starts, Reuters reported in February 2017 that negotiations were back on. But as of November 2017, the deal hadn’t been announced and in a research report from SunTrust Robinson Humphrey, the firm said they remain “highly skeptical” that the transaction will ever come to fruition.
FanDuel/DraftKings: If you’ve watched a football game on TV in the last couple of years, chances are you’ve seen an advertisement for these fantasy sports leaders. While they’re both private companies, that didn’t stop information from leaking out related to the potential merger in June 2017. Axios obtained a copy of the merger document containing financials, risks and even the post-merger structure, including an “expected ruthless purge of redundant staff.” No doubt this caused concern for employees of potential entity, plus finding out that DraftKings and FanDuel had combined operating losses in 2015 in excess of $600 million. The two announced in July 2017 the deal was dead due to regulatory reasons.
Google/HTC: The search giant had been trying to make a mobile phone that grabbed the market like the iPhone. But their acquisition of Motorola never quite worked out as they’d hoped. So in September 2017, they looked to buy the hardware unit of HTC. Word of the potential purchase of the Chinese phone maker had been seeping out for weeks. Between the first news of conversations leaking out and then the leak (on Twitter of all places) of an all-hands meeting announcing the merger, the stock jumped nearly 10 percent. The deal went through not long after, with Google paying $1.1 billion.
And the one that didn’t…
Amazon/Whole Foods: As discussed, leaks can drive up the takeover premium. So obviously its in the best interest of the acquiring company to make sure that no news prior to an announcement ever sees the light of day. With Amazon’s recent acquisition of Whole Foods, the retail giant played hardball with the high-end grocer, specifically as it related to information leaks. According to recode, “Amazon…threatened it would walk away if the talks leaked to the press” knowing that their best-and-final offer of $42 share could be at risk. There was no leak and now you can buy an Alexa along with 30 different kinds of olives all at the same place.
It is highly likely there will continue to be significant deal leaks throughout 2017 and into the coming years. To help prevent leaks from happening, companies are increasingly looking to virtual data rooms to secure sensitive company data and manage content. In fact, the market for these services is more than $800 million with an 8 percent growth rate over the last five years. And with a business environment increasingly reliant on technology, demand is poised to increase in the years ahead.
What draws businesses to virtual data rooms, as compared to other cloud-based data storage services, is the enterprise-grade security and real-time content management capabilities. Providers like SmartRoom allow administrators to create custom security profiles that let administrators set restrictions all the way down to the document level. SmartLock, a revolutionary technology proprietary to SmarRoom, gives administrators the capability to remotely detonate documents even after they have been downloaded. This feature ensures full control of data even after it as been taken outside the platform.
When it comes to a sensitive transaction like a merger or acquisition, you want to ensure that your company has the right technology in place to maintain control and prevent information leaks. A great place to start is with a virtual data room.