The dark art of leaking deals

Andrew Ross Sorkin of The New York Times writes about how some bankers and lawyers like to leak to the business media the deals they are working on.

Sorkin writes, “Of course, the topic of this column hits a little too close to home. I will share a bit more, but not too much. A magician, as they say, never reveals his secrets.

“First, leaks become exponentially more likely as more people are added to a transaction, whether it be people inside the acquirer or target, or perhaps, as additional advisers are included in the process. If a big deal needs financing — as in debt from banks — the risk of leaks jumps. Every bank contacted then knows about the deal, as does the bank’s law firm. And it is not just one or two bankers and lawyers who were first contacted — it’s often dozens of them. Every banker or lawyer who brings on a new client must clear the new assignment with a ‘conflicts committee.’ That committee can have half a dozen or more people on it — and those people may have to check with others at the firm who are working on competitive projects. This is true not just of banks and law firms but of consulting firms, accounting firms and public relations firms.

“The private equity world poses its own problem. Those firms often have large investment committees and also employ armies of outside consultants and law firms that typically do much of the heavy lifting when it comes to going through the books and records of prospective targets.

“By the time deal talks begin in earnest, it is almost impossible that fewer than 100 people know about it; more likely it’s many more. If there is a ‘bake-off’ — a competition among advisers for the assignment — the number is even higher. And if there is an auction, well, forget about it.”