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M&A performance in freefall but deal numbers hit levels rarely seen since financial crisis

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June 25, 2018

The global M&A market recorded its worst ever performance in the second quarter of 2018 since the launch of the Quarterly Deal Performance Monitor (QDPM) by Willis Towers Watson in 2008.

As the overall volume of mergers and acquisitions remains on track to beat the post-crisis high of 2015, dealmakers struggled to add value and on average underperformed the Index by 6.1pp (percentage points) in the last three months.

UK acquirers managed to buck this negative worldwide trend, recording a strong performance of 10.6pp above the index for the last six months. According to the results, which are based on share-price performance, 63% of UK dealmakers spent the first half of 2018 buying overseas companies. In contrast, North American acquirers significantly underperformed the Index by 4.8pp in the last six months, with overseas deals representing just 13% of acquisitions made so far this year, compared to 20% for the same period in 2017.

Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: “The increasing focus on domestic markets will intensify the competition for an ever-shrinking pool of targets, making it harder to deliver a deal without harming shareholder value. British companies have instead benefited from taking a more internationalist stance by targeting foreign businesses, despite Brexit uncertainties still looming large and the weakness of the pound.”

Alongside North American dealmakers, all other regions underperformed their respective indices in the second quarter of 2018. While European acquirers took the top spot in terms of the performance league with a marginal underperformance of 0.6pp, Asia-Pacific businesses continued to record the worst regional M&A results with a major underperformance of 21.7pp. Reflecting the trend in North America, more Asian buyers are turning to their home markets, with domestic deals now accounting for 82% of all acquisitions made in the first half of 2018, compared to 76% in the same period last year.

Additional findings revealed by the Willis Towers Watson global study in partnership with Cass Business School include:

  • Deal types of all sizes, valued from $100 million to over $10 billion, have underperformed the Global Index on average.
  • Over a one-year rolling period, acquirers have underperformed overall by an average of 2.7pp.
  • Quick, cross-sector and cross-border deals all underperformed the index (by 3.2pp, 5.4pp and 6.6pp respectively), a clear trend reversal from the previous quarter.
  • Consumer staples, Healthcare and Telecommunications sectors outperformed their respective indices.
  • The Consumer Product and Services, Energy & Power, Financial, Industrial, Material and High Technology sectors underperformed their indices

Jana Mercereau said: “The deal making bonanza seen so far in 2018 is likely to continue as long as solid economics, low interest rates and supportive credit markets persist. At the same time, it’s also hard to ignore that the last two occasions when M&A activity reached similar levels were a year before the financial crash in 2007 and just before the bursting of the dot.com bubble in 2000.

“Despite the optimism and appetite for pursuing growth through M&A, the poor performances that have followed completed deals suggest investors right now have very little margin of error. As M&A activity accelerates towards its peak, the importance of discipline and strong diligence gs so companies can mitigate risks and avoid the mistake of paying over the odds.”

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 Thomson Reuters.

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.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.

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