The myth of the merger scoop

John McDuling of Quartz writes about how scoops about mergers and acquisitions are actually just well-placed leaks by companies and their public relations staffs.

McDuling writes, “A new study from the University of London’s Cass Business School, Mergermarket and transactional software company Intralinks argues that most M&A news is leaked intentionally, rather than uncovered through ingenuity or released by accident. Intralinks has a horse in this race: The company sells ‘virtual data rooms’ which are designed to enable secure sharing of confidential information between buyers and sellers during a sale process. Yet the research still paints an interesting picture.

“In 142 transactions involving a publicly-listed merger target between 2008 and 2012, there was no evidence of leaks, as measured by abnormal share price movements, before the start of the due diligence process (when a potential buyer is given the chance to look at at an acquisition target’s books). There’s plenty of potential for a leak at this stage of the proceedings: Companies are talking to each other, emails can be misdirected, documents lost. But leaks simply don’t happen, according to the study, because it’s in nobody’s interest for information that could potentially scupper the deal to get out at this stage.

“After due diligence begins, there’s still only limited evidence of leaking—until we get past the 40-day mark. Then leaks start to proliferate. The report puts this down to the fact that when due diligence is dragging on, it usually means negotiations have hit a roadblock. A well-timed leak to the media can help one side of the deal gain the upper hand—making it look like competition for an asset is heating up when it isn’t, for example. ‘Leaks look increasingly likely to be motivated by one party being unhappy with how negotiations are progressing and therefore choosing to leak information to push the deal in a direction they prefer,’ the report says.”