Global M&A market performance was flat in the first quarter of 2018, according to Willis Towers Watson’s latest Quarterly Deal Performance Monitor (QDPM). Dealmakers on average underperformed the Index by 0.1pp (percentage points) in the last three months, with large (valued at over $1bn) and mega (value at over $10bn) deals especially struggling to add value, as well as cross border and cross regional deals.
Based on share-price performance, key findings revealed by the Willis Towers Watson global study in partnership with Cass Business School include:
- Asia-Pacific acquirers recorded the worst regional results with underperformance of 16.8pp, followed by 3.5pp underperformance by North American acquirers and marginal underperformance by European acquirers (1.3pp).
- While large deals underperformed the index by4.0pp, medium-sized deals (valued at under $1bn) bucked this negative trend to outperform the market by 0.4pp.
- Complex or slow deals underperformed the market, such as cross-border (3.7pp) and cross regional (4.3pp). In contrast, less complex deals such as domestic (0.4pp) and intra-regional (0.4pp) were able to outperform their respective indices.
- The quarter’s percentage of cross-regional (14%) and cross-sector deals (27%) are at their lowest since 2009 and 2015 respectively.
Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: “Despite recent robust forecasts predicting an M&A dealmaking bonanza for 2018, these latest figures evidence the significant obstacles acquirers must navigate from the day a deal is announced to it being recognised as a success by shareholders.
“It remains a big risk in this environment to pursue transformative, jumbo deals, and large transactions are likely to be held back while political and regulatory uncertainty continues. Large deals are rarely easy wins, they require rigorous due diligence and integration know-how in order to tease out the value. In contrast, the stronger performance of smaller deals that are closer to home, which are easier to reach the finish line due to fewer hurdles, might provoke a reassessment from acquirers with larger, more complex deals in their sights.”
Although the QDPM analysis shows the three-year rolling average performance for global acquirers remains positive at 4.5pp, these latest figures reveal an underperforming trend for ‘slow’ deals, which take 70 days or longer to complete and typically include mega, large, cross-border and cross-regional deals.
Mercereau said: “The deal-making environment remains favourable due to a market flush with cash, record equity valuations and cheap debt, but poor performances have tested the market’s appetite for ambitious mega-mergers and Asia Pacific’s sharp decline further highlights the risks of M&A deals.
“According to our analysis, companies will continue to be more cautious in 2018, whilst still actively looking at strategic, smaller transactions, with technology acquisition the number one driver of M&A pursuits.”