Asia-pa­cific saw high­est deal fail­ure rate in 2016: re­port

Mint Asia ST - - News Dealstreetasia - B Y I S H I TA R USSELL

The Asia-pa­cific re­gion recorded the high­est av­er­age merger and ac­qui­si­tion (M&A) deal fail­ure rate in 2016 at 13.2%. The global av­er­age fail­ure was 7.2%.

Ac­cord­ing to a re­search re­port by In­tralinks and Cass Busi­ness School, this marks the high­est rate of world­wide deal fail­ures since the start of the global fi­nan­cial cri­sis in 2008. It’s also sig­nif­i­cantly higher than the over­all long-term av­er­age deal fail­ure rate of 5.7%.

Last year saw some ma­jor deals col­lapse. Chi­nese com­pany An­bang In­sur­ance backed out of ac­quir­ing Star­wood Ho­tels and Re­sorts for $15.5 bil­lion. A mas­sive $160 bil­lion deal be­tween pharma gi­ants Pfizer and Al­ler­gan fell apart.

Oil giant Hal­libur­ton pro­posed ac­qui­si­tion of Baker Hughes in a deal val­ued at $38.7 bil­lion and Sta­ples’s at­tempt to buy ri­val Of­fice De­pot for $5.5 bil­lion were other ca­su­al­ties.

Over the past 25 years, China, Aus­tralia and Sin­ga­pore are among the coun­tries with the high­est pro­por­tion of failed deals, while Ja­pan, In­dia and South Korea are among the coun­tries with the low­est rates of deal fail­ure.

From the pe­riod be­tween 1992 and 2016, 12.9% of the deals failed in China, while in Aus­tralia the rate of was 11.9%and for Sin­ga­pore, which ranked third on the list, it was 9.2%.

Chi­nese firms, which have emerged as the most ag­gres­sive buy­ers glob­ally, have also faced sig­nif­i­cant fail­ure rates. For ex­am­ple, deals by Chi­nese ac­quir­ers for Aus­tralian tar­gets had a 23.3% fail­ure rate, while those with In­dian tar­gets had a 25% fail­ure rate.

In­ter­est­ingly, the fail­ure rate for deals in­volv­ing pub­lic sec­tor com­pany tar­gets is sig­nif­i­cantly higher than for pri­vate tar­gets. Ac­cord­ing to data pro­vided in the re­port, the long-term pub­lic tar­get av­er­age fail­ure rate was 11.1% since 1992, while the longterm pri­vate tar­get av­er­age fail­ure rate was just 3.7% and the over­all av­er­age deal fail­ure rate was 5.7%.

And among sec­tors, the materials, real es­tate and en­ergy and power sec­tors had the high­est rates of deal fail­ure. The con­sumer, in­dus­tri­als and health­care sec­tors had the low­est deal fail­ure.

The re­port pointed to some pre­dic­tors for fail­ure in deal com­ple­tions for pub­lic tar­gets, first of which was the ab­sence of a ter­mi­na­tion fee.

The sec­ond most sig­nif­i­cant fac­tor was the size of the deal, as ac­qui­si­tions of larger tar­gets were less likely to be com­pleted.

The third most sig­nif­i­cant fac­tor in­flu­enc­ing pub­lic tar­get deal fail­ure was if the tar­get’s ini­tial re­ac­tion to a deal an­nounce­ment was to con­sider it a hos­tile or un­so­licited ac­qui­si­tion.

For pri­vate tar­gets, there were four sig­nif­i­cant pre­dic­tors in­clud­ing the rel­a­tive size of the tar­get com­pared to the ac­quirer. Deals in­volv­ing larger tar­gets rel­a­tive to smaller ac­quir­ers were less likely to be com­pleted.

Sec­ond, the com­ple­tion of deals in­volv­ing pri­vate tar­gets with more liq­uid ac­quir­ers had a lower prob­a­bil­ity of fail­ure.

The study also found that the method of pay­ment of­fered by an ac­quirer was the third most sig­nif­i­cant fac­tor in­flu­enc­ing the prob­a­bil­ity of a pri­vate tar­get deal fail­ure. Deals where cash was the only form of con­sid­er­a­tion of­fered to the tar­get’s share­hold­ers were less likely to fail.

The fourth again was the ab­sence of a ter­mi­na­tion fee.

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