Why has there been an increase in failed auctions?
09 Mar 2020
The number of failed M&A auctions has accelerated sharply over the past two years, according to Investec data. In this special edition podcast, we are joined by Private Equity Client Group Head, Christian Hess, to discuss why failed deals are on the rise and how they can be avoided.
Failed auctions podcast
The number of failed auctions has risen dramatically over the last 18 months. We speak to Investec’s Christian Hess to find out what’s driving this increase.
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The UK accounted for 54% of all failed auctions since 2015. Partly this figure is a result of the UK being the largest EU market for private equity deals, so the dynamics are most striking in this region. However, the political uncertainty in the UK will certainly have impacted auction processes, particularly in sectors like consumer where it is difficult to price future cashflows.
Following analysis of the data, we have highlighted 6 key reasons that auctions fail:
- Inadequate investment case positioning
- Wrong process architecture
- Incorrect screening of buyer universe
- Insufficient access to buyer universe decision-makers
- Misaligned incentives between vendor and management teams
- Business plan underperformance
The research highlighted a strong link between deal size and propensity for failure: deals with EVs below £250m accounted for 59% of all failed auctions, while deals with EVs over £1bn accounted for 14%.
“Our source data analysis suggests that the first three reasons above account for more than 70% of failed auctions. This highlights the importance of choosing the right advisors when considering a sale process.”Christian Hess, Private Equity Client Group Head, Investec