Chapter 6 of the Gilbert + Tobin Report on Acquisitions and Programs for 2021 (below) examines success factors in public mergers and acquisitions in 2020.
Significant decline in public merger and acquisition success rates
70% of all closed public M&A deals over $ 50 million were successful in 2020. This is a significant decrease from the 83% success rate in 2019. Given the background of the COVID-19 pandemic, this may not be entirely surprising.
High quality transactions (i.e. transactions valued at over $ 500 million) had a 60% success rate in 2020, a significant decrease from 91% in 2019 (the highest we have seen since 2017). Transactions between $ 50 million and $ 500 million were more successful than high-value transactions in 2020, although the success rate decreased slightly from 80% in 2019 to 75% in 2020.
It is interesting to consider the circumstances in which transactions in 2020 were unsuccessful:
COVID-19 resulted in MACs
Many transactions with public companies were disrupted in 2020 by bidders who wanted to withdraw due to material adverse changes in business (MAC) Conditions. Scottish Pacific’s proposed acquisition of CML group through the program and LNG9’s takeover bid for liquefied natural gas were not conducted on the basis of MAC terms allegedly violated due to the effects of COVID-19 (for more details: Metlifecare / EQT and Abano Healthcare / BGH Capital were two other deals that were terminated due to a MAC condition but could be revived if the parties agree to a revised price. More on this in Chapter 8 – Implementation Agreements and Offer Considerations for Public Mergers and Acquisitions in 2020 .
Injury to defeat
In the early days of the COVID-19 outbreak in Australia, the Australian Unity Office Fund announced the refinancing of its debt facility, which resulted in defeat under Starwood’s takeover bid. Starwood relied on this breach to allow its offer to be terminated. In particular, the offer was launched before COVID. A shareholder who held nearly 15% of the shares in issue was also against the deal, so relying on defeat provided an elegant exit for a deal that likely would not have been successful.
The planned acquisitions of Infigen Energy, 3P Learning, OptiComm and Cardinal Resources failed due to a competing offer. In the case of 3P Learning, despite the recommendation of the target body, the program was rejected, mainly because of the votes of a major shareholder who had teamed up with one of the competing bidders.
While some deals failed the shocks of COVID-19, the data suggests that public M&A deals have been more resilient than expected.
The success rate for 2020 does not include 12 transactions that were current as of February 15, 2021. The success rates for 2015-2019 have been updated to reflect the final outcome of all transactions analyzed in the past reviews.
Success factors in public mergers and acquisitions: Agreements provided a safer route to success
We saw a significant decrease in the success rate of acquisitions compared to agreements in 2020, with 87% of programs achieving a successful outcome, compared to just 53% of acquisitions (up from 82% and 86% in 2019, respectively). This is partly due to the bidding war over Cardinal Resources, in which three takeover bids lapsed or were withdrawn (including a proposed higher bid from Dongshan Investments) before Shandong Gold ultimately won the day. There were also failed bids from Aware Super for OptiComm and from UAC for Infigen Energy. Both were controversial situations that resulted in a competing bidder acquiring the target.
Friendly transactions have significantly higher success rates
As expected, friendly transactions were much more successful than hostile takeovers (81% versus 44%). The failed competing offers for Cardinal Resources, OptiComm and Infigen Energy contributed significantly to the outcome of hostile transactions.
Decrease in premiums for larger deals
The average premium offered by bidders for all transactions over $ 50 million increased from 39% in 2019 to 67% in 2020.
The 67% premium was calculated based on the final offer price against the target’s share price at the close of trading on the day prior to the announcement of the offer. For transactions with multiple bidders, the premium of the second and later bids is measured using the closing price before the bid that relates to the first bid.
It could be argued that this inflates the premium analysis.
However, when this data is adjusted to exclude all unsuccessful competing bids from analysis, the average premium for all transactions above $ 50 million is 47%.
Taking the adjusted data into account, the average premium for transactions valued at over $ 500 million continued to decline to 26% in 2020. This corresponds to 41% and 50% respectively over the last two years and is in line with the lower success rates observed for transactions of this size in 2020.
The competing cardinal resource offerings in 2020 topped the list of the 10 highest rewards offered in the past five years. The proposed takeover offer by Dongshan Investments, which would have offered a massive 380% premium for the acquisition of Cardinal Resources, was ultimately not made because the 50% minimum acceptance requirement would not have been satisfactory if the offer had continued. This paved the way for Shandong Gold to successfully meet the target with a slightly lower premium of 330%.
The top 10 transactions by premium offered over the past five years
The five best rewards paid in 2020
- 330% – Shandong Gold’s successful acquisition of Cardinal Resources valued at $ 565 million through acquisition
- 79% – Iress’ successful acquisition of OneVue Holdings for $ 115 million by agreement
- 70% – The successful takeover of Village Roadshow by BGH Capital valued at USD 586 million by agreement
- 69% – Perseus Minings’ successful acquisition of Exore Resources for $ 64 million by agreement
- 56% – Iberdrola’s successful acquisition of Infigen Energy for $ 893 million through acquisition
Pre-bid stakes in public mergers and acquisitions
The bidder was in some way involved in 48% of all deals worth over $ 50 million in 2020. This was remarkably in line with the previous two years, with 46% and 49% of transactions in 2019 and 2018, respectively, involving a pre-bid stake.
Pre-bid participation remained the most common form of pre-bid participation in 2020 and was used in 65% of all transactions with a pre-bid agreement. This was followed by pre-bid agreements with shareholders, which existed in 40% of all transactions with a pre-bid agreement.
The move away from cash-settled equity swaps observed in 2018 continued, with only one bidder employing this type of instrument in 2020 (or at least publicly suggests) Starwood Capital in its withdrawn takeover bid to Australians of 485 Million USD Unity Office Fund.
Even if there are compelling strategic reasons for purchasing a pre-bid stake, this is of course not always possible. If it were possible to determine the proportion of bidders who would have preferred to secure a pre-bid portion, we would assume that this would represent the vast majority.