Deal leaks in Australia’s public market are increasing proportionally to the total announced deals with the percentage catching up to global worst practice, the latest study shows. This would justify local regulators’ concerns.

Both Australian Securities and Investments Commission (ASIC), the country’s corporate regulator, and the Takeovers Panel have recently voiced concerns about deal leaks.

The study by the M&A Research Centre (MARC), Bayes Business School, for SS&C Intralinks, which analyzed significant pre-announcement trading globally, shows in its 2024 annual update that 2023 was the worst year for Australian leaks, accounting for 8.2% of total deals announced. That ranks Australia 5th globally, behind South Korea, the US, Hong Kong and India.

In comparison with previous years, Australia ranked 7th in 2021 and 8th in 2022, with leaks in those respective years amounting to 6.3% and 5.6% of total announced deals.

MARC senior lecturer Valeriya Vitkova says one explanation behind the increasing prevalence of deal leaks in Australia could be a more competitive M&A environment.

The study does not support claims made by dealmakers, including some at Mergermarket’s M&A Forum in Sydney last week, that Australia is “the leakiest market on the planet”.

Instead, Australia was listed as the least leaky of the 10 countries with the highest number of acquisitions of public targets over the period from 2009 to 2023, according to the MARC’s analysis.

Globally deal leaks averaged at 8% of announced deals over 2009 to 2023, while Australia, at 4.2%, is ranked 10th. For the same period, Hong Kong is the leakiest market at 13.7%, followed by South Korea at 12.1%.

Leak or not leak

The evidence is not clear if leaks are positive or negative for deals – they could sabotage deals as well as increasing the competitiveness of a deal, thus improving prospects of a deal completing, according to MARC’s Vitkova. The MARC research finds no evidence to suggest leaks make a difference to deal outcomes. Deals that are leaked are just as likely to lapse or complete as deals that have not leaked, said Vitkova.

Speaking at Mergermarket’s M&A Forum last week, Aidan Allen, co-CEO at Jarden, noted how leaks remove full control away from deal parties. While leaks might lead to price discovery, “most strategics will not participate in an auction played through the front pages of the media as they have shareholders to account to if they are listed,” he argued.

At the same event Delphine Cassidy, chief communications officer at Orica [ASX:ORI], suggested that leaks could add 50% to a deal premium and can change the economics of a deal.

Geoff Elliott, Managing Partner at GRACosway, and Roger Newby, managing director at Sodali & Co, agreed that leaks are inherently bad for the M&A process, undermines trust, disrupts negotiations and can kill deals.

Newby highlighted the unique character of Australia’s media landscape in having two daily columns dedicated to breaking deal-related news – The Australian Financial Review’s Street Talk column and The Australian’s Data Room column. He added that making cross -border clients more aware of Australia’s news market is a key part of their advisory work.

Regulators on notice

ASIC’s December Corporate Finance Update is clear that it expects advisors to listed entities to have “policies, procedures and appropriate controls to limit access to confidential information to only those who require it.”

ASIC chair Joe Longo wrote earlier this year ASIC: We’re cracking down on market-moving media leaks that ASIC is considering how to best reduce the incidence of leaks. He noted that ASIC has commenced numerous targeted reviews of firms’ handling of confidential information in response to apparent media leaks. “Where a leak in a transaction is seen, parties involved in the transaction should expect to be contacted by ASIC seeking explanation of how they have protected the confidential information that they hold.”

This news service has reported that ASIC is not at this stage actively considering changing existing settings but is examining global practices and that any proposed changes to existing settings would involve conversations with industry as an initial step.

Australia’s Takeover Panel is also looking into this matter, with Panel CEO Allan Bulman noting that they are in regular contact with ASIC around a range of issues.

Last year, the Australian Financial Review published confidential details of a Takeovers Panel review into a bid for document productivity company Nitro Software from bidders KKR owned Alludo and Potentia Capital, including who was leading it. The Panel complained about the “growing prevalence of apparent contraventions of the confidentiality and publicity restrictions.” It had seen instances of leaks to the media around potential transactions that have not been announced. The Panel said that it “is concerned to see the conduct eliminated” and that “steps will be taken where there is a breach.”

In an unprecedented move the Panel requested statutory declarations from participants in a takeover to confirm that neither they nor their directors, officers, employees, agents or advisors had disclosed confidential information.