Companies in the Energy sector are among those
with the highest likelihood of being acquired
New online calculator revealed for companies to
determine likelihood of acquisition
Intralinks, the leading global provider of Virtual Data Room
software and services for managing M&A transactions, today
announces the release of “Attractive M&A Targets: Part 1 – what
do buyers look for?,” a report based on a new study into what makes
a company an attractive acquisition target. Conducted in
association with the M&A Research Centre at Cass Business
School, City University London, the research examines six key
financial measures of almost 34,000 public and private companies,
each with annual revenues of at least $50 million, over 23 years.
The research findings provide predictive insights into which
companies are likely to become acquisition targets, highlighting
significant differences between private and public company targets.
Intralinks has also developed an online interactive calculator,
using the methodology used in the study, so companies can compare
how attractive they are to potential buyers.
The research finds six measures that are statistically
significant predictors of a company becoming an acquisition target.
It also finds that significant differences in the values of these
measures impact the probability of being acquired. The measures
are:
- Growth: Target companies have
higher growth than non-targets. Our study finds that over the
23-year period, the growth of target companies is 2.4 percentage
points higher than that of non-targets. The growth “premium” of
targets becomes even higher during market downturns, recessions and
periods of economic uncertainty.
- Profitability: Private target
companies are more profitable than private non-targets, whereas
public target companies are less profitable than public
non-targets. Since 2000, profitability of private targets is 1.2
percentage points higher than that of private non-targets, whereas
profitability of public targets is 1.7 percentage points less than
public non-targets. Since 2008, public targets are 3.3 percentage
points less profitable than public non-targets.
- Leverage: Private target
companies are significantly more leveraged than private
non-targets, while public targets have lower levels of leverage
than public non-targets. Private target companies have over three
times more leverage than private non-targets. Post-2008, public
targets have 11% less leverage than public non-targets.
- Size: Private target companies
are significantly larger than private non-targets, whereas public
targets are significantly smaller than public non-targets. Private
targets are 63% larger than private non-targets. Public targets are
55% smaller than public non-targets.
- Liquidity: Target companies have
lower levels of liquidity than non-targets. Companies in the bottom
two deciles for liquidity are on average 35% more likely to become
acquisition targets in any given year than companies overall.
- Valuation: Public target
companies have lower valuation multiples than public non-targets.
Public companies in the bottom three deciles for valuation are on
average 30% more likely to become acquisition targets in any given
year than public companies overall.
“We found that high leverage and large size are the two most
statistically significant predictors of a private company becoming
an acquisition target, whereas small size and low profitability are
the two most statistically significant predictors of a public
company becoming an acquisition target,” said Philip Whitchelo,
Vice President of Strategy and Product Marketing at Intralinks.
“Since 2008, acquirers have been particularly targeting
underperforming public firms, because underperforming public
companies are more likely candidates for operational improvements
and cost savings through merger synergies. Buyers also take
advantage of public companies whose valuations have fallen the most
during market downturns.”
Companies in the Energy sector are among those with the highest
likelihood of being acquired. Private energy companies were found
to have almost twice the probability of being an acquisition target
in any given year than private companies overall, and public energy
companies had the second highest likelihood of becoming acquisition
targets after companies in the Finance sector.
Commenting on the results, Professor Scott Moeller, Director,
M&A Research Centre at Cass Business School in London said:
“There have been many historic deals which reflect our results.
Take the acquisition of Panasonic Healthcare Co Ltd by KKR in 2013,
or the acquisition of Whyte & Mackay by Emperador in 2014 or
the acquisition of Biomet by Zimmer in 2014 – these targets had
high probabilities of being acquisition targets based on their
leverage and size – and this eventually became a reality.”
Download the full report and try the calculator here:
https://www.intralinks.com/resources/publications/attractive-targets-part-1
Methodology
The sample in this study comprises a global dataset of public
and private companies, with minimum annual revenues of US$50
million, during the period 1992-2014. The sample includes 24,507
unique public companies and 9,445 unique private companies, a total
of 33,952 unique companies, which translates into 275,713 firm-year
periods. The financial data for the sub-sample of public companies
was obtained from Datastream and the financial data for the
sub-sample of private companies was obtained from Thomson One
Banker. Data on takeover bids for the target companies was also
sourced from Thomson One Banker. Within the sample, target
companies are defined as companies subject to a “change of control”
takeover bid, where the acquirer is proposing to acquire more than
50% of the target. The study examines six financial measures of the
companies in the sample to identify if any significant differences
exist between companies that become the subject of a takeover bid
in any given year vs. those companies that do not. These measures
are:
i. growth (three-year compound annual growth
(CAGR) in sales) prior to takeover bid; ii. profitability (ratio of
three-year average earnings before interest, tax, depreciation
& amortisation (EBITDA)/sales) prior to takeover bid; iii.
leverage (ratio of three-year average debt/EBITDA) prior to
takeover bid; iv. size (sales) prior to takeover bid; v. liquidity
(ratio of current assets/current liabilities) prior to takeover
bid; and vi. valuation (ratio of enterprise value (EV)/EBITDA)
prior to takeover bid.
These financial measures of the companies are analysed for the
study period as a whole and also during five distinct M&A
cycles:
a. the 1992-1999 expansion of the M&A
market, the latter part of which was accompanied by a boom in
internet/technology stocks; b. the 2000-2002 M&A market
contraction, following the bursting of the 1990s early
internet/technology stock market bubble; c. the 2003-2007 expansion
of the M&A market, which was accompanied by an increase in
corporate and consumer credit, leverage and financial derivatives;
d. the 2008-2009 M&A market contraction, which was marked by a
global financial crisis, a reduction in liquidity and lending, bank
failures and government bailouts of financial institutions; and e.
the 2010-2014 period, which has been marked by an uneven recovery,
global monetary easing, low inflation, low interest rates and a
significant increase in very large transactions (mega deals).
For each of the six financial measures, the probability of being
a target is analysed based on a percentile ranking of the companies
along each measure. This allows us to see how the likelihood of
being acquired changes with respect to changes in the value of each
financial measure. The percentile ranking of each company was
constrained to companies from the same region, industry and for the
same year. A probit regression analysis is performed to see if any
of the six financial measures (independent variables) are
statistically significant predictors of the likelihood of being
acquired. The dependent variable in the probit model is a dummy
variable which is equal to one if the company is acquired in a
given year and zero otherwise. Based on the results of the
regression analysis, a predictive model is built which calculates
the probability of a company being an acquisition target.
As part of the study, interviews with 20 executives working for
corporate acquirers and 20 executives working for private equity
(PE) firms were conducted by Remark. These M&A professionals
offer their insights and provide context to the research
findings.
About Cass Business School
Cass Business School, which is part of City University London,
is a leading global business school driven by world-class
knowledge, innovative education and a vibrant community. Located in
the heart of one of the world’s leading financial centres, Cass has
strong links to both the City of London and the thriving
entrepreneurial hub of Tech City. It is among the global elite of
business schools that hold the gold standard of triple-crown
accreditation from the Association to Advance Collegiate Schools of
Business (AACSB), the Association of MBAs (AMBA) and the European
Quality Improvement System (EQUIS). Cass educates nearly 4,000
students each year on globally renowned programmes across all
levels of study from Undergraduate, to Masters, to Executive
Education. The school is ranked second in the UK for best graduate
universities for finance professionals (LinkedIn University
Rankings) and their Business & Management and Accounting &
Finance degrees are ranked first in London (Guardian University
Guide 2017). The faculty at Cass are experts in their fields,
producing cutting-edge research with real-world impact. The recent
Research Excellence Framework results assessed 84% of Cass research
to be world-leading or internationally excellent.
For further information visit: www.cass.city.ac.uk or on Twitter
follow @cassbusiness.
About Intralinks
Intralinks Holdings, Inc. (NYSE:IL) is a global content
collaboration company that provides cloud-based solutions to
control the sharing, distribution and management of high value
content within and across organizations according to the
highest-level of security and the most stringent compliance
regulations. Over 90,000 clients, 99% of the Fortune 1000
companies, have depended on Intralinks to digitally transform and
simplify critical business processes and secure high-value
information. With a 20-year track record of enabling high-stakes
transactions and business collaborations valued at $31.3 trillion,
Intralinks is a trusted provider of easy-to-use, enterprise
strength, cloud-based collaboration technology. For more
information, visit www.intralinks.com.
Forward Looking Statements
The forward-looking statements contained in this press release
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are express or implied statements that are not based on
historical information and include, among other things, statements
concerning Intralinks' plans, intentions, expectations,
projections, hopes, beliefs, objectives, goals, and strategies.
These statements are neither promises nor guarantees, but are
subject to a variety of risks and uncertainties, many of which are
beyond our control and could cause actual results to differ
materially from those contemplated in these forward-looking
statements. Accordingly, there can be no assurance that the results
or commitments expressed, projected, or implied by any
forward-looking statements will be achieved, and readers are
cautioned not to place undue reliance on any forward-looking
statements. The forward-looking statements in this press release
speak only as of the date hereof. As such, Intralinks undertakes no
obligation to update or revise the information contained in this
press release, whether as a result of new information, future
events or circumstances or otherwise. For a detailed list of the
factors and risks that could affect Intralinks' financial results,
please refer to Intralinks public filings with the Securities and
Exchange Commission from time to time, including its Annual Report
on Form 10-K for the year-ended December 31, 2015 and
subsequent quarterly reports.
Trademarks and Copyright
"Intralinks" and the Intralinks' stylized logo are the
registered trademarks of Intralinks, Inc. © 2016 Intralinks,
Inc.
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