Press Release

Global M&A forecast: Performance to bounce back in 2019 following worst year for deal making since financial crisis

Deal makers record worst year in a decade as global M&A market underperforms for fifth straight quarter

January 9, 2019
| United States

ARLINGTON, VA, January 9, 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 leading global advisory, broking and solutions company, Willis Towers Watson (NASDAQ: WLTW) 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 in a decade, what can potential acquirers expect in 2019?

According to the latest results from Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM), Asia Pacific acquirers have shown the worst annual performance of all regions with an underperformance of 17.1 percentage points (pp) below the regional MSCI Index, followed by an underperformance by North American acquirers of 3.8 pp below their regional index. Europe was the only region to see its acquiring companies outperform their regional index over the course of 2018, by 5.9 pp.

“The market stress that characterized 2018 will persist, with rising regulatory uncertainty, ongoing trade and tariff negotiations, including Brexit talks and the U.S.-China trade disputes, making it ever more challenging to deliver deals successfully,” said David Hunt, senior director, Willis Towers Watson’s mergers and acquisitions team. “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 growth.”

  2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Global M&A Deals – Average Annual Performance (percentage points) 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, here are Willis Towers Watson’s 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 crisis 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 U.S. administration and Brexit, improve the position of buyers in achieving better value from their deals.
  2. U.S. M&A market will remain steady, but foreign deals will fall: We expect to see a global decline in the number of cross-border deals due to regulatory constraints fueled by an increasing trend toward protectionism. This will lead to a more defensive strategy of domestic consolidation, for which some nations will be better equipped. The U.S. 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.
  3. No uptick is expected in Asia Pacific: 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 17.1 pp 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 U.K. companies in 2019, the positive results enjoyed by non-U.K. acquirers when buying in the U.K. 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 $10 billion), which underperformed the market by 14.5 pp, the worst performance of all deal types. Global political uncertainty, from trade wars and growing 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.

“Technology disruption, changing consumer behavior, the slowdown in the growth of emerging markets and record cash reserves will drive companies to get into the M&A market,” said Hunt. “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 crisis, 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 that meet the study criteria are included in this research.
  • Deal data are 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.

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 in more than 140 countries. We design and deliver solutions that manage risk, optimize 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.