Dealmakers face pressure to clinch M&A quickly in volatile markets

When HSBC plc (HSBA.L) struck a deal last week to sell its Canadian unit to Royal Bank of Canada (RY.TO) for C$13.5 billion, the winning bid offered one thing the others didn’t – speed.

HSBC wrapped up the deal in just eights weeks after saying it was considering selling its Canadian business in early October. From its first contact, RBC, Canada’s biggest lender, told HSBC it could close the deal quickly if selected, a person familiar with the matter said.

HSBC was initially looking to announce a deal by the end of the year, but RBC said it could do it by the U.S. Thanksgiving holiday, the person added. After the final bids went in around mid-November, RBC said it could turn everything around in a week, the person added.

A spokesperson for RBC declined to comment while HSBC did not respond to requests for comment. The source was not authorised to speak about the matter publicly.

Quick deal completion is part of a wider trend as market volatility encourages companies to reach an agreement fast.

Average number of days taken to complete a Canadian-targeted merger and acquisition fell to a more than 20-year low of 57 days in 2022, down from 76 days in 2021 and 91 days in 2020, according to Dealogic.

“There is an old adage that time kills deals and that’s particularly the case where you can’t predict what’s going to happen day-to-day in markets,” said Neil Selfe, CEO at advisory INFOR Financial.

It’s a trend playing out in bigger markets too. In the United States, deal timelines fell by almost 30% to 66 days this year from last year, where transactions took more than one day to close, the data shows.

“Where we would normally have a 45-day window to get something done, we’re looking at 20 days, 30 days, and that’s being driven by client instructions,” said Sarah Gingrich, partner at law firm Fasken, noting that the trend started this year.

NO COMPROMISE
Market participants said shrunken timelines were being achieved by more efficient means of due diligence and lawyers and advisers working longer hours, made possible by investment banks hiring more staff to deal with record M&A during the global pandemic.

“There are a lot more remote due diligence sessions — exponentially more — than there were pre-pandemic,” said Sarfraz Visram, head of Canadian and international mergers and acquisitions at the Bank of Montreal.

Deal announcements are one thing but getting all the regulatory approvals to close a deal are another matter altogether.

Rogers Communications Inc (RCIb.TO) is fighting to wrap up its C$20 billion purchase of Shaw Communications Inc (SJRb.TO) over 20 months after striking a deal, thanks to opposition from Canada’s antitrust bureau.

The parties are set make their last-bid effort in front of Canada’s competition tribunal next week.

Financial advisers for mergers and acquisition transactions are typically paid a portion of a successful deal, while lawyers are paid an hourly rate, according to market participants.

Yet, overall compensation should not be affected by tighter timelines due to the same amount of work done, according to market participants. Dealmakers also argue that due diligence is not compromised due to shorter timelines.

“You do shrink timelines at the expense of the hours of sleep that the professionals get around the table but without compromising the quality of the work,” said Francois Carrier, head of investment banking & co-head of capital markets at Desjardins Capital Markets.

“Given everybody’s fiduciary duty, responsibilities, you’re careful for this speeding up never to come at the expense of the quality of the work being done in the background.”