Transaction timing in public M&A in 2022

Chapter 7 of Gilbert + Tobin’s Takeovers + Schemes Review 2023 (below) explores transaction timing for public mergers and acquisitions in 2022.

Chapters:

• Key Highlights - An analysis of Australian public mergers & acquisitions in 2022

• Chapter 1 - Market activity: M&A activity stabilises in 2022 after all time high of 2021

• Chapter 2 - Sector analysis: exploring the sectors of interest in 2022

• Spotlight - technology public M+A

• Chapter 3 - Public M&A: schemes, takeovers and pre-bid stakes - trends in 2022

• Chapter 4 - Involvement of foreign bidders in public M&A in 2022 & FIRB considerations

• Chapter 5 - Public M&A: consideration types and sources of funding in 2022

• Spotlight - decarbonisation and M&A

• Chapter 6 - Success factors in public M&A in 2022

• Chapter 7 - Transaction timing in public M&A in 2022

• Chapter 8 - Implementation agreements and bid conditions in public M&A transactions in 2022

• Chapter 9 - Regulator influence, trends and developments in public M&A in 2022

Takeovers v schemes: which is quicker to implement?

The average time taken to both implement takeovers and schemes increased in 2022 (albeit only marginally in respect of takeovers).

For 2022:

• the time taken to implement a takeover increased slightly, moving from an average of 94 days in 2021 to 97 days in 2022; and

• the time taken to implement a scheme of arrangement rose by over 13%, moving from an average of 115 days in 2021 to 130 days in 2022.

Average days to end of takeover offer v scheme implementation

Traditionally, takeovers take less time on average to implement than a scheme. That certainly remained the case in 2022.

Over the last few years there has been a downward trend in the time taken to implement a takeover, and although the downward trend did not continue in 2022, it was only a marginal uptick. Over the last three years, the average time taken for a takeover has fallen almost 6% between 2020 and 2022, from 103 days in 2020, to just 97 days in 2022.

We think this trend is a reflection of the “self-selection” of deals that are conducted by takeover rather than scheme. That is, increasingly, it is deals that are more straightforward that lend themselves to being conducted via takeover.

The flip side to this observation is that acquisitions with complexities (that may require target co-operation, leveraged financing, regulatory approvals or certainty of outcome within a known timetable) and which would therefore be expected to take longer to implement, will more likely need to be done as a scheme. This is also borne out by the data.

The average time to implement a scheme in 2022 was 130 days.

More tellingly of the longer term trend, in 2016 the timing differential between a takeover and a scheme was just 14 days (a takeover taking on average 100 days and a scheme on average 114 days). In 2022, that differential was 33 days. The differential has been as high as 51 days (in 2019).

Timing in takeovers

As stated above, in 2022 there was a marginal increase in the average time taken for a takeover from announcement to close of the offer - from 94 days in 2021 to 97 days in 2022.

There was a small reduction in the average initial offer period of the takeovers (from 58 days in 2021 to 55 days in 2022) and an increase in the average extensions of the offer period under the takeovers (from 36 days in 2021 to 42 days in 2022).

The data indicates that, in the right circumstances, takeovers will potentially be materially quicker to implement than schemes of arrangement. This advantage might also be amplified by the fact that, under a takeover, board control is often obtained prior to the close of the offer (i.e. when the bidder obtains more than 50%) whilst with a scheme, board control is only obtained upon implementation of the scheme.

Timing in takeovers

What is perhaps more interesting, looking at the data below, is that while the holding of a pre-bid stake has in the past provided a material advantage in shortening the period to close of a takeover offer, in 2022 this position was reversed.

Days to close of takeover bid

Since 2018, bidders with a pre-bid stake have generally achieved completion of the takeover in a shorter period of time than if it did not have that stake. In 2021, that timing advantage was substantial - on average, a takeover bid made by a bidder with a pre-bid stake was 71 days shorter than a bid without such a stake.

However, in 2022, takeovers made without a pre-bid stake closed, on average, 21 days earlier than the average time taken for a bid made with a pre-bid stake.

This is a curious result, although not unprecedented: in 2017, takeovers without a pre-bid stake closed more quickly than bids with a pre-bid stake.

It should be noted that the data for 2022 includes the takeover bids for Virtus Health and the takeover proposal for Nitro Software. Each of these transactions involved a bidder holding a significant pre-bid stake (BGH Capital in the case of Virtus Health and Potentia Capital in the case of Nitro Software) with the competing bidders using the relatively novel dual scheme / takeover structure (with the takeover having a 50.1% minimum acceptance condition) which by design seeks to diminish the advantage of the pre-bid stake. The competitive nature of the bids, and the involvement of the courts with the proposed scheme and multiple Takeovers Panel applications, had the effect of elongating the offer period.

Timing in schemes of arrangement

As shown below, the time period between announcement of a scheme and its implementation date has been relatively stable over the last five years. This is to be expected in the context of such a regulated process.

Timing in schemes

The general timing “rule of thumb” of between three to four months to implement a scheme holds true and the 2022 data shows this, with more than half of all successful schemes during 2022 taking between 90 and 120 days from announcement to the scheme implementation date.

No schemes were completed in less than 90 days (the shortest period was 94 days). However, a number of schemes took significantly longer than 120 days - with 18% of successfully completed schemes taking more than 150 days to implement. The reasons for the extended time periods varied, and included:

• Big River Gold / Aura Minerals - delays in the preparation of the scheme booklet attributed to needing input from subject matter specialists;

• Pendal / Perpetual - Perpetual’s receipt of a control proposal from a consortium comprising Regal Partners and BPEA EQT, which led to the parties changing the consideration structure and seeking clarification from the court on the operation of the scheme implementation deed (described further in our Implementation agreements and bid conditions in public M&A transactions in 2022 chapter); and

• ResApp / Pfizer - revisions to the acquisition terms (Pfizer increasing its offer) arising in response to the valuation range determined by the independent expert resulting in ResApp adjourning the scheme meeting.

In 2022 we saw a lengthening in the average number of days between announcement and date of the scheme meeting (up from 92 days in 2021, to 109 days in 2022), and a small reduction in the average number of days between the scheme meeting and the implementation date (down from 24 to 22 days). This may suggest a general preference to incorporate the likely timing of regulatory approvals into the period prior to the shareholder meeting for a scheme, rather than push the time between that shareholder meeting and the second court hearing to accommodate that timing.