Tuesday, 12 July 2016

Mega deals surge

Overall deal numbers drop as uncertainty persists in North American M&A market.
Acquirers continue to outperform in slowing M&A market.

United Arab Emirates, 11 July 2016 – The number of mega mergers and acquisitions (M&A) deals reached an all-time high for the second quarter with ten completions so far according to the latest Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM). This compares to five for the corresponding period in 2015 and against a backdrop of overall falling M&A volumes during the same period.

The research – run in partnership with Cass Business School – also reveals that acquirers continue to achieve excellent financial performance, continuing the unbroken run of fourteen consecutive quarters of outperformance, which saw deal-makers returning a market outperformance of 7.3 percentage points (pp); compared to 5.3pp of the prior quarter.

Steve Allan, M&A Practice Leader (EMEA) at Willis Towers Watson, said: “There is no doubt we have seen a marked slowdown in deal volumes compared to the record deal numbers of completed M&As at the end of last year. However the high number of mega deals recorded this quarter reflects the continued confidence of the largest serial acquirers, as well as the typically longer lead times for the largest deals”.

A regional breakdown of deals shows a significant drop in volumes in North America with 88 deals completed in Q2 2016 compared to 119 in the corresponding quarter in 2015. Asia and Europe also saw a drop in deal volume however not to the same extent as North America with 58 and 34 respectively for Q2 2016 compared to 79 and 43 for Q2 2015. Asian acquirers maintained the top spot in the performance league, with an outperformance of 22.8pp above the regional index. Acquirers from Europe outperformed by 5.9pp above their regional index, and were followed by North American acquirers which outperformed their index at 2.2pp, the first outperformance for the region since Q3 2015.

Steve Allan continued: “North America’s drop in deal volume could signify the end of the M&A surge, however it could also be a sign of the uncertainty that the current US presidential election campaign is creating. Our research shows an apparent correlation between US election years and M&A underperformance; this having also occurred in both 2012 and 2008. It is therefore questionable if the drop in volumes is significant, or just a reflection of the current business climate in the region.”

The research also shows the performance of Domestic, Intra-regional and Cross sector acquirers significantly increased compared to last quarter, with respective out-performance of 12.1 pp, 10.6 pp and 13.9 pp. In the YTD industry analysis, there is an outperformance against the respective industry indices for all sectors with the exception of Energy & Power and Telecoms.

“This has been an interesting quarter for M&A from a number of angles. We can see a broad range of industry sectors successfully completing deals, moving away from the reliance on dominant sectors such as pharmaceuticals. The data also shows a strong core of high performing M&A activity specifically across domestic, intra-regional and cross-sector deals. So whilst the jury is still out on whether we are seeing a decline in the market, the most consistent theme we see in this research is the outperformance of acquirers against global, regional and industry-specific indices. The next quarter will be significant, if deal volumes continue at the same level we will be past the crest of the wave, but until then we remain with the question: ‘Has M&A activity just paused or are we on a plateau?’”