Research by Cass Business School’s M&A Research Centre found a clear link between good quality announcements and deals being completed.
The study examined comms activity around 198 public-to-public M&A deals in the UK between 1997 and 2010, worth at least $100m.
It found that 84 per cent of deals announced as actual offers were completed, compared with around half of those that were announced in response to a leak. This compares with just over 50 per cent for those deals where initial communication was in response to press or regulatory inquiry.
Deals where both companies involved were represented by PR agencies had the highest completion rate. And deals in which just one company hired a PR agency had a better completion rate than those with no agency involved.
Deal announcements containing quotes from CEOs or chairmen of both the target and the acquirer companies had the highest rate of closure, at 91 per cent. Those with no leadership statements were successfully completed 67 per cent of the time.
By comparison, a leadership statement from just one side had the lowest completion rate of 57 per cent. "This might be because the absence of one side from the announcement indicates hesitancy or outright opposition to the deal," said Scott Moeller, director of Cass’ M&A Research Centre.
The timing of deal announcements was also crucial. Deals announced between 7.15am and 9am had the highest success rate – posting an 87 per cent completion rate. This fell to 64 per cent for those announced after 9am.
Interestingly, the research found that markets failed to reward deals that were proactively announced in the short-term compared with those where the initial announcement was outside management’s control.
‘Actual offer’ deals showed an abnormal return of two per cent over the five-day period studied, compared with six per cent for ‘response to speculation’ announcements.
Jeetesh Singh, co-author of the report, said: "It may be that this sort of speculation causes a stir in the market, leading to the target company being bid up."
Moeller said: "The research clearly shows the importance of properly resourcing deal teams’ communication efforts. This is especially the case given the proliferation of social media, and the need to be responsive to a much wider range of stakeholders.
"But it also throws up some surprising findings around the immediate market response to deal announcements. For instance, it appears that equity markets can – in the very short term at least – reward a lack of public information about an M&A transaction."
