Competitive bids – What makes the difference – Is price really all that matters? - M&A/Private Equity

Eight targets were the subject of a competitive bid process in 2015 (representing 13 of the 40 deals in our sample). There was no clear common factor which contributed to the success of a deal in a competitive scenario which once again raises the question of whether it is just a matter of 'highest price wins'.

Unsurprisingly from the target's perspective, a competitive bidding process brought bigger price increases, with bidders increasing their prices (as against the amount initially proposed or offered) by 18% in competitive deals as opposed to 11% for non-competitive deals.

Unlike in previous years where regulatory conditions or other factors affecting the certainty of deals appeared to weigh heavily on directors' decisions, in 2015 the bid price appeared to be the key influencing factor in each board's decision to support an offer (including favouring scrip over cash where the implied value of scrip was greater). In addition to price, we also looked at other tactics adopted in competitive situations:

Of the five initial bids that were launched with a pre-bid stake of greater than 10%, a subsequent bid was successful in three of those cases, with one battle (over Asciano) still to be decided. However, it should be noted that in two of those three successful subsequent bids, the initial bidder's pre-bid stake largely comprised of an interest through a pre-bid agreement which effectively lapsed when the superior offer emerged. In the other deal, Anchorage and Affinity Education used a novel structure to ensure rival bidder G8 Education's pre-bid stake would not, of itself, block the transaction.*
In 2015, first in was not necessarily best dressed. Bidding first did not have a statistical impact on the prospects of success with three initial bidders in the seven deals (with known results) being successful, three of the subsequent bidders being successful and one deal (over Armour Energy) where both bidders failed.
Where two competing bidders offered different forms of consideration (cash versus scrip, or a combination of cash and scrip), the cash bid won the day in three of the five deals. This is consistent with results in our previous deal surveys.

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