Chapter 7 of the Gilbert + Tobin Acquisitions and Programs Review in 2021 (below) examines the transaction timing for public mergers and acquisitions in 2020.
Takeovers take longer … but still a little faster than the schema route
The regulations essentially run according to a prescribed standard timetable. The main variable is the time it takes to get the necessary regulatory approvals. Because of this, the average days for implementing a regulatory scheme have remained relatively stable – 115 days in 2017, 126 days in 2018, 129 days in 2019, and 127 days in 2020.
The time required to complete a takeover, however, depends on the speed at which the takeover bids are accepted. Many factors can influence this.
Traditionally, acquisitions have, on average, taken less time to implement than a bargaining scheme. The extent of this difference varied, but never material. In 2017, however, acquisitions were implemented much faster than the programs. On average, takeovers occurred 46 days earlier than 2017, 30 days in 2018, and 51 days in 2019. In 2020, however, that difference narrowed to just 24 days, as acquisitions took an average of 103 days to complete.
Note, however, that the data for acquisitions is somewhat skewed by three transactions that took an unusually long time:
- Shandong Gold’s off-market takeover bid for Cardinal Resources, which lasted 214 days and was among competing bids from three other bidders;
- WAM Capital’s anti-market offer for the Concentrated Leaders Fund, which lasted 176 days and was not recommended by the Board until WAM Capital increased its offer price; and
- ARA Asset Management’s unsolicited prorated offer for Cromwell Property Group, which lasted 160 days after the target panel objected and viewed it as an opportunistic attempt by the bidder to take control through stealth.
When these three takeovers are excluded from the analysis, the average days to complete an takeover in 2020 was 78 days.
Regardless, the 2020 experience was that:
- Takeovers took longer than in previous years; and
- While acquisitions were faster than agreements, the key time advantage we’ve seen over the past few years has, on average, diminished significantly.
We believe the increase in the time it takes for acquisitions to reflect other trends we saw in 2020 including:
- increasing the proportion of transactions made through acquisition rather than under the program; and
- the increase in hostile transactions.
It is important that in recent years the emergence of takeovers as a much shorter process coincided with the emergence of agreements on the strategically preferred method of carrying out a control transaction.
Essentially, the trend up to 2020 was for acquisitions to be used more where there was a specific reason why an acquisition should be preferred. One reason was that the company’s circumstances (whether this is the bidder assuming a controlling position or the composition of the register suggesting that a number of significant shareholders are ready to accept quickly) opened up the possibility of the Complete deal in less time.
These trends reversed in 2020.
Takeovers were increasingly used, largely due to the resurgence of hostile transactions. This indicated gaps in perceived value between bidders and targets resulting from the uncertainty caused by the COVID-19 pandemic (and, at least in these deals, initially translated into reduced takeover premiums). This, in turn, explains the increase in the time it takes to complete acquisitions.
Indeed, it is interesting to note that the dates as of 2020 are in line with previous years, when the transaction structures between acquisitions and agreements were more balanced. In those years there were hardly any material differences between the two from a temporal point of view.
Transaction time for takeovers
As noted above, in 2020 the average time to acquire from the announcement to the closing of the offering increased significantly – from 78 days in 2019 to 103 days in 2020.
Other notable statistics are:
- an insignificant increase in the average duration of the period from the announcement of the offer to the end of the original offer period in 2020 compared to 2019;
- The increase in the time of the takeover is mainly due to extensions in the offer period. The takeovers were extended an average of 39 days in 2020, compared to just 17 days in 2019.
This trend is in line with the increased contestability of acquisitions (including the number of hostile transactions) observed in 2020.
Over the past few years, we have assessed the impact of a pre-bid portion on the time it takes to complete a takeover. Unlike 2017 (where the outcome was skewed by just one deal that was closed with no pre-bid participation), deals where the bidder held a pre-bid stake had a distinct advantage in closing faster.
The 2020 data reflects the fact that unsecured bidders have generally faced larger (and more time consuming) control competition. However, the time advantage of a pre-bid portion was smaller in 2020, since takeovers without a pre-bid portion took on average only 14 days longer than those with a pre-bid portion. It should be noted that in 2019 no takeover bidders started their offer without a pre-bid portion.
Transaction time in agreement schemes
As shown below, the period between the announcement of a draft agreement and its implementation date has been relatively stable over the past six years. This is obviously to be expected within the framework of such a regulated process.
Just over half of all successful agreements announced in 2020 took between 80 and 120 days from the announcement to the date the settlement was implemented.
This reinforces the general “rule of thumb” of three to four months for implementing a system.
Interestingly, many of the agreements that lasted longer than this general window in 2020 included a competitive bidding environment, either through:
- competing bidders (e.g. Uniti’s takeover of OptiComm); or
- Necessity to sweeten the consideration offered in order to ensure the support of the major shareholders (e.g. the takeover of OneVue by IRESS, the takeover of Zenith Energy by Elemental and the takeover of Village Roadshow by BGH Capital).
In previous years, longer periods for agreements were mainly due to delays in regulatory approvals. Unlike the case of TPG Telecom and Vodafone, a deal announced in 2018 but not finalized until 2020 after the ACCC’s objections in federal court were overcome, this was not a significant problem in practice in 2020.