Chapter 7 of Gilbert + Tobin’s 2021 Takeovers + Schemes Review explores transaction timing for public mergers and acquisitions in 2020.

Takeovers taking longer… but still slightly faster than the scheme route

Schemes of arrangement essentially run to a prescribed standard timetable. The main variable is the time taken to obtain any necessary regulatory approvals. For that reason, the average days taken to implement a scheme of arrangement has remained relatively stable – 115 days in 2017, 126 days in 2018, 129 days in 2019 and 127 days in 2020.

However, the timing required to implement a takeover will depend on the speed of acceptance of the takeover offers. This may be influenced by many factors.

Traditionally, takeovers have taken, on average, less time to implement than a scheme of arrangement. The extent of this differential has varied, but was never materially significant. However, in 2017, takeovers became significantly quicker to implement than schemes - on average, takeovers were implemented 46 days earlier than a scheme in 2017, 30 days in 2018, and 51 days in 2019. However, in 2020 we saw this differential reduce to only 24 days as takeovers took 103 days on average to implement.

However, it should be noted that the data for takeovers is somewhat skewed by three transactions which took an unusually long time:

  • Shandong Gold’s off-market takeover bid for Cardinal Resources, which took 214 days and was in the context of competing bids from three other bidders;
  • WAM Capital’s off-market hostile bid for Concentrated Leaders Fund, which took 176 days and was only recommended by the Board once WAM Capital increased its bid price; and
  • ARA Asset Management’s unsolicited proportional bid for Cromwell Property Group, which took 160 days given opposition by the target board who regarded it as an opportunistic attempt by the bidder to take control by stealth.

If these three takeovers are excluded from the analysis, the average days taken to implement a takeover in 2020 was 78 days.

Regardless, the experience from 2020 has been that:

  • takeovers took longer than in prior years; and
  • on average, while takeovers were still quicker than schemes of arrangement, the material advantage in timing we have observed over the last few years has significantly narrowed.

Schemes of arrangement took 127 days on average from announcement to the scheme implementation date in 2020. Takeovers took 103 days on average from announcement to the end of the takeover offer in 2020.

We consider that the increase in time being taken by takeovers is a reflection of other trends we have observed during 2020, including:

  • the increase in the proportion of transactions being undertaken by way of takeover rather than scheme; and
  • the increase in hostile transactions.

Importantly, over the last few years, the emergence of takeovers as a materially shorter process has coincided with the emergence of schemes of arrangement as being the strategically-preferred method of implementing a control transaction.

Essentially, the trend until 2020 was that takeovers tended only to be used where there was a particular reason why a takeover should be preferred. One reason was if the circumstances of the company (whether that be the bidder starting from a control position, or the composition of the register suggesting a number of significant shareholders being open to accept quickly) created the possibility of the deal being concluded in shorter time.  

These trends reversed in 2020.

Takeovers were being used more, driven strongly by the resurgence in hostile transactions. This was indicative of gaps in perceived value between bidders and targets arising from the uncertainty generated by the COVID-19 pandemic (and reflected in decreased takeover premiums, at least in those deals at an initial stage). This in turn explains the lengthening in the time taken to implement takeovers.

Indeed, it is interesting to note that the data in 2020 on timing is consistent with previous years where transaction structures were more equally balanced between takeovers and schemes of arrangement. In those years there was little material difference between the two from a timing perspective.

Transaction timing in takeovers

As stated above, in 2020 there was a significant lengthening in the average time taken for a takeover from announcement to close of the offer – from 78 days in 2019 to 103 days in 2020.

Other statistics worth noting are:

  • an immaterial increase in the average length of the period from announcement of the offer to end of the initial offer period in 2020 compared to 2019;
  • the increase in takeover timing being overwhelmingly attributable to extensions in the offer period. Takeovers were extended in 2020, on average, by 39 days, compared to just 17 days in 2019.

The average length of the initial offer period for takeovers was 64 days in 2020 and the average length of the extended offer period was 39 days.

This trend is entirely consistent with the increased contestability of takeovers (including the number of hostile transactions) observed in 2020.

In previous years, we have assessed the impact of having a pre-bid stake on the time taken to complete a takeover. Generally, other than in 2017 (where the outcome was skewed by there being only one deal that proceeded to completion without a pre-bid stake), deals where the bidder held a pre-bid stake had a distinct advantage in closing more quickly.

Takeovers with a pre-bid stake took 99 days on average to close in 2020 and takeovers without a pre-bid stake took 113 days on average to close in 2020.

The data from 2020 reflects the fact that bidders without a pre-bid stake generally faced a greater (and more time-consuming) contest for control. The timing advantage of a pre-bid stake was, however, more subdued in 2020 as takeovers without a pre-bid stake only took 14 days longer on average than those with a pre-bid stake. It should be noted that in 2019, no takeover bidders started their bid without a pre-bid stake.

Transaction timing in schemes of arrangement

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

The scheme meeting was held, on average, 105 days after announcement of a scheme of arrangement in 2020. It then took on average a further 22 days to implement the scheme.

Just over half of all successful schemes of arrangement announced during 2020 took between 80 – 120 days from announcement to the scheme implementation date.

This reinforces the general timing “rule of thumb” of between three to four months to implement a scheme.

Interestingly, many of the schemes of arrangement that took longer than this general window in 2020 involved a competitive bidding environment, either through:

  • competing bidders (eg Uniti’s acquisition of OptiComm); or
  • a need to sweeten the consideration offered to secure the support of major shareholders (eg IRESS’s acquisition of OneVue, Elemental’s acquisition of Zenith Energy and BGH Capital’s acquisition of Village Roadshow).

In prior years, extended periods for schemes of arrangement were primarily driven by delays in regulatory approvals. Other than in the case of TPG Telecom and Vodafone, a deal which was announced in 2018 but which only closed in 2020 after ACCC objections were overcome in the Federal Court, this was not a significant issue in practice in 2020.