The global M&A market recorded its second worst performance since the launch in 2008 of Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM). Based on share-price performance, acquirers have failed to add value for eight consecutive quarters, underperforming the Global Index by -6.4pp (percentage points) in the last three months, and -4.6pp over the past year, for deals valued over $100 million.
The index, carried out by Willis Towers Watson in partnership with Cass Business School, used deal data from Refinitiv while all analysis has been conducted from the perspective of the acquirers. The company took the share-price performance within the quarterly study and measured it as a percentage change in share price from six months prior to the announcement date to the end of the quarter. And only completed M&A deals with a value of at least $100 million which meet the study criteria have been included in this research.
Said so, Asia Pacific is the only region worldwide to have recorded a positive M&A performance in the third quarter of 2019, with dealmakers in this region surpassing their local index by +0.8pp, ending a run of 10 consecutive negative quarters.
European acquirers ended a run of nine consecutive quarters of positive results by underperforming the regional index by -6.7pp. The continent’s efforts will have inevitably been impacted by the worst ever third quarter result by UK acquirers of -20.0pp (based on only seven completed deals).
Meanwhile, North American companies struggled to unlock value from their deals for an eight consecutive quarter, recording the worst performance of all regions with an underperformance of -6.9pp.
The annual number of deals is expected to fall for the fourth consecutive year, although deal volume was marginally on the rise in Q3 2019 compared to the previous quarter due to an increase in North America and Asia Pacific transactions. Fifty-nine per cent of deals 333 completed year-to-date have failed to add value.
“As deal volume continues its annual downward trend, tough conditions and intensifying competition for an ever-shrinking pool of targets further ramp up the stakes for CEOs under pressure from increasingly vocal shareholders,” said Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain. “Despite easy wins being few and far between, our research still shows two out of five deals have successfully navigated the market volatility, decreasing valuations, and macroeconomic and political uncertainty to outperform the benchmark.”
Based on share price performance, additional findings revealed by the study include:
- Large deals (valued at over $1bn) had their lowest quarterly volume since 2009 and are on course to have the lowest annual volume since 2013.
- Seven mega deals (value at over $10bn) closed in Q3 2019, compared to none in the last quarter and five in Q1 2019, although performance on average was weak.
- M&A transactions are taking longer to close, with deals completed in the first nine months of 2019 taking on average 140 days to execute compared to 119 days for the same period in 2018.
“The past ten years have been relatively good times for dealmakers, now trade wars, Brexit, weakness in China’s economy and forecasts for slower growth are weighing down sentiment in capital markets, indicating more difficult times ahead,” said Jana Mercereau.
“The instinct for dealmakers during the next downturn may be to retreat to the sidelines, with deals often taking longer to close and being more complex. Our experience instead suggests that a weak economy should be seen as an opportunity, as well-executed deals rooted in a clear-cut strategic rationale, thorough due diligence and sound financial considerations, will create value in both good and challenging economic conditions,” Mercereau concluded.