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Performance to bounce back following worst year for deal making since financial crash

Global M&A forecast 2019

Mergers and Acquisitions

January 29, 2019

The Global M&A market continues to struggle to add value and buyer performance has been in steady decline since a 2015 peak, according to long-term data compiled by Willis Towers Watson and Cass Business School.

ZURICH, Monday 28 January 2019 —The Global M&A market continues to struggle to add value and buyer performance has been in steady decline since a 2015 peak, according to long-term data compiled by Willis Towers Watson and Cass Business School. After 2018 saw deal makers underperform in terms of shareholder value for an unprecedented fifth consecutive quarter, and record their worst annual performance for a decade, what can potential acquirers expect in 2019?

Willis Towers Watson expects deal makers to take a long-term view in response to the ongoing uncertainty, as confidence and market fundamentals remain robust. Therefore, John Carter, Director Global Services & Solutions at Willis Towers Watson, Switzerland, said: “The ability to deliver anticipated benefits in terms of shareholder value for the buyer is at a ten-year low. On top of this, the market stress that characterised 2018 will persist, with rising regulatory uncertainty, ongoing trade and tariff negotiations, including Brexit talks and the US-China trade disputes, making it ever more challenging to deliver deals successfully.

Global M&A performance peaked in 2015 and has been on the slide ever since. However, with the strategic imperative for deals remaining strong, we think there’s a realistic chance that deal makers will do better next year as long as acquirers pick their targets carefully for gth.”

Figure 1: Global M&A Deals: Average Annual Performance (percentage points)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
3.2 4.0 2.7 -0.7 4.5 5.5 10.1 5.4 -1.3 -3.0

The figures in the table show the annual median-adjusted performance of all acquirers.

2019 M&A predictions

Based on short and long-term trends revealed by the data, as well as conversations with clients and colleagues, Gabe Langerak, Western Europe Head of M&A at Willis Towers Watson, has shared his five M&A predictions for 2019:

1. Things can only get better in 2019

2018 was a tough year for deal makers, who recorded their worst annual performance since the financial crash in 2008. Although complex headwinds remain, we are optimistic that the market will bottom out in 2019 and, supported by more clarity over the direction of the US administration and Brexit, improve the position of buyers in achieving better value from their deals.

2. Global fall in foreign deals – but European cross-border M&A to intensify

We expect to see a global decline in the number of cross-border deals due to regulatory constraints fueled by an increasing trend towards protectionism. This will lead to a more defensive strategy of domestic consolidation, for which some nations will be better equipped. The US domestic M&A market, for example, has traditionally shown itself to be very robust, so we expect volumes to remain stable as acquirers focus their firepower on domestic targets.

However, the European cross-border M&A market is likely to remain buoyant, and it may even g, given the strong links within Europe and the relaxation of regulatory constraints within the region.

3. No uptick expected in APAC

As well as a significant drop in deal volume, Asia-Pacific acquirers recorded the worst annual performance of all regions in 2018, with an underperformance of 17.1pp (percentage points) below the regional MSCI Index. We expect M&A activity from Chinese companies to be muted in 2019, impacting volumes across the Asia-Pacific region.

4. Outside interest in the UK remains strong

While ongoing uncertainty around Brexit is likely to translate into less M&A activity for UK companies in 2019, the positive results enjoyed by non-UK acquirers when buying in the UK will see Britain remain one of the most popular M&A target nations.

5. Mega deals continue to struggle

There were 17 mega deals in 2018 (those valued at over $10bn), which underperformed the market by 14.5pp, the worst performance of all deal types.
Global political uncertainty, from trade wars and ging protectionism to Brexit, will continue in 2019 and negatively impact mega deals in particular, as buyers will be cautious of transactions that take a long time to complete in a volatile deal making environment.

John Carter added: “Political and economic uncertainty remain, impacting large cross-border deals and inevitably leading to some degree of volatility in terms of volume, but deal activity will prevail. Technology disruption, changing consumer behaviour, the slowdown in the gth of emerging markets and record cash reserves will drive companies to get into the M&A market. With many targets looking more expensive than they were during previous M&A peaks, such as in 1999 during the dot-com boom and in 2008 before the global financial crash, there has never been a more important time for decision makers to focus on target selection, diligence and execution before jumping into a deal if they are to give themselves the best chance of success.”

Willis Towers Watson QDPM Methodology

  • All analysis is conducted from the perspective of the acquirer.
  • Share-price performance within the quarterly study is measured as a percentage change in share price from six months prior to the announcement date to the end of the quarter.
  • All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered.
  • Only completed M&A deals with a value of at least $100 million which meet the study criteria are included in this research.
  • Deal data sourced from Refinitiv.

About Willis Towers Watson M&A

Willis Towers Watson’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction.

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