The perils of accelerated dealmaking
In volatile equity markets, more deals than ever are being done with no documentation and little if any due diligence. Are banks taking too many risks?
When the French government wanted to sell part of its stake in media company Thomson in 2002, it did so at an unprecedented rate for a privatization. Not for Thomson the rigmarole of a long prospectus and city-by-city roadshows: the ¤1.1 billion deal took just 24 hours to market and sell. Compare that with energy and transport company Alstom's secondary offering in early 2001, one of the last follow-on deals in France to be fully marketed. That took two weeks.
Tough markets are driving this rush to accelerated book building, which bankers say have been intensifying in the first months of 2003. Opportunities to do deals are scarce and short. Bankers can't wait while their lawyers pore over a company's documents and write a carefully worded prospectus. One deal in three is now sold within 48 hours, according to investment banking research firm Dealogic. But some say bankers are rash to by-pass due diligence on these offerings.
"The question is, how much due diligence you do versus what investors expect you to do," says a banker at a US firm in London. "One view is that if you don't have documents you can't be liable.