Intralinks recently published the findings of a long-term, global study into abandoned acquisitions – deals that are announced but which subsequently fail to complete. Together with the M&A Research Centre at the University of London’s Cass Business School, we investigated more than 78,500 M&A deals announced over 25 years. The purpose was to identify the significant predictors of failed deals and the strategies that acquirers and targets employ to increase the likelihood of successful deal completion. We also surveyed 40 global M&A professionals and incorporated their insights into our report, Abandoned Acquisitions: Why Do Some Deals Fail to Complete?
This is my fifth blog post on our study, as I continue to dive deeper into the most significant predictors of deal failure. In this post, I’ll discuss some controversial findings of our research relating to how the numbers of financial and legal advisers on a transaction influence the probability of deal completion. (If you want to read my other posts on abandoned acquisitions, you can find them on Intralinks’ Dealmaking blog. If you want more details about the methodology and data sample behind our study, please download the full report here.)
Our study found several interesting results relating to advisers and deal failure:
- It was only the number of advisers retained by the acquirer in an M&A transaction that had a significant relationship with the probability of deal completion. The number of target advisers had no significant influence.
- The higher the number of financial and legal advisory firms retained by the acquirer in an M&A transaction, the lower the probability of the deal failing to complete.
- We could quantify the effect of adding additional financial and legal advisory firms by the acquirer.
According to our analysis, adding one additional acquirer financial adviser reduced the probability of deal failure by 11.5 percent. Adding one additional legal advisor reduced the probability of deal failure by 8.0 percent.
These findings proved controversial to the majority of the 40 M&A professionals whom we surveyed as part of our research. They cited concerns over hiring multiple advisers, including increased costs, conflicting advice, and the potential for a large cast list, and large egos, to get in each other’s way and impede the smooth running of the transaction.
However, some of the M&A professionals we surveyed also argued that when advisers are hired for their specific expertise, managed effectively and incentivised to drive the deal to completion, increasing the number of specialist advisers can improve the chances of success. This is especially true in the case of complex transactions, including cross-border acquisitions and public or hostile bids.
“[Working with multiple advisers] would certainly be advisable in major deals – but it would depend on the jurisdiction,” argues a partner of a Finnish law firm. “If you have key experts in each area where you need advice, then this will lead to a better result.”
The larger or more complicated the deal, the greater the number of interviewees who advocated for multiple advisers.
“If the deal is of a complex nature such as cross-border, cross-sector or a dual listing, then multiple advisers can help,” says a senior director of M&A of a Swiss public company.
However, not everyone agrees.
“My own view is that you should just use one firm – but a good one,” says a partner of a French private equity firm. “Having multiple advisers can create various miscommunications, complications and disagreements across the entire process.”
Acquirers who opposed the use of multiple advisers pointed out the potential for interference in speedy decision making, which might undermine the deal.
“Different advisers have different ways of gathering information and different processes, and will very often end up giving different advice,” says an executive vice president of a Canadian public company. “It makes matters more complex and puts us at a disadvantage when doing the deal.”
Sellers also expressed concern about coordination and communication, and warned that too many advisers can obstruct an effective negotiating strategy and hinder their ability to obtain the best possible price.
“The involvement of multiple advisers on the sell-side can hinder negotiations and reduce the chances of completing a deal,” says the finance director of a US private company.
Our findings regarding the impact of multiple advisers on the probability of deal success is an interesting example of how the analysis of a very large data set of transactions can generate surprising and sometimes counter-intuitive conclusions that may be at odds with people’s professional experiences. That is not to say that the comments of those M&A professionals who opposed the use of multiple advisers on a deal are wrong, simply that they are based on a much narrower range of experiences and anecdotes. The data does not lie and in this case the conclusions are clear.
“If you have more advisers, you have more people to have a look at the same problem and you are less likely to find issues afterwards,” says a senior vice president for corporate finance and treasury of a US public company.
To find out more about the predictors of deal failure, and the strategies acquirers and targets can use to avoid the deal failure trap, download Abandoned Acquisitions: Why Do Some Deals Fail to Complete?