Quality shines through as M&A deal volumes fall globally

The research – run in partnership with Cass Business School – shows deal volumes for Q4 2016 so far reduced to 201 deals compared to 307 in Q4 2015. However Q4 2016 may still show strength in the final two weeks and is predicted to finish the year with an additional 40 deals to complete in the final two weeks of the year.

Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, Willis Towers Watson comments: “Deal volumes have dropped globally which is driven by the lower levels of transactions in both North America and Europe. The results suggest that despite, globally low interest rates acting as an incentive for companies to raise capital to undertake M&A activity, the economic uncertainty post Brexit and pre US election has caused companies to wait and see before they embark on new activity.”

Mercereau continues: “The drop in performance from previous quarters suggests markets are being more cautious of M&A activity in the current economic climate. Alongside this the complexity of cross-border vs domestic deals and the increasing size of the deals completed, is prolonging integration and causing markets to hold off for a longer period before backing the deal. However it’s worth noting that despite this, acquirers are continuing to track well above market indices, maintaining a strong return on the deals that have closed.”

Regionally the research reveals that North American acquirers are the most active, with volume of 84 deals and a market performance of 4.0pp above the regional index, but this is lower than the previous quarter. Acquirers in Asia-Pacific show a significant decrease in performance and are currently just above the regional index at 0.3pp but have a slightly improved number of deals closing in Q4 2016 than the previous quarter. However, acquirers from Europe show an underperformance of -4.3pp in contrast to an outperformance of 11.6pp above their regional index in the previous quarter.

Mercereau, said: “The fall in both volume and performance of European deals is interesting, as the research looks at completed deals, this drop could be due to the lack of activity immediately after the Brexit vote and to some extent before the US election. The surprise and immediate uncertainty may have caused companies to hold back before they start to commit to deals. However the number of deals in North America suggest that, as stock markets have performed well, confidence in M&A deals has continued post-election.”

The industry analysis shows Consumer Products and Services, Financial Services, Healthcare, High Technology, Materials and Telecommunications sectors are all underperforming their respective indices. However in the overall results for the YTD 2016, with the exception of Energy and Power, High Technology and Telecommunications, all sectors have outperformed their respective indices.

Mercereau said: “Almost all industries are showing a positive trend in performance of M&A deals this year, suggesting the days of pharma dominance in M&A activity may be long gone. M&A has become a mainstream way to look for growth and one that consistently shows higher return on investment than other growth strategies.”

The performance of acquirers in Large, Domestic, Intra-Regional, Cross-Sector and Slow deals are down in Q4 2016 and are significantly lower than both Q3 2016 and Q4 2015. In a reversal of trend, Mega, Medium Sized, Cross-Border, Cross-Regional, Intra-sector and Quick deals have underperformed the market this quarter, however YTD all deal types have shown an over performance in the market.

Mercereau continues: ”This quarter has seen a natural slowdown, the third quarter saw a greater volume of deals completed suggesting that companies pushed through deals taking advantage of lower interest rates and before the predicted turbulance of the US election. However we need to be wary of taking one quarter’s results and forming a trend. We have entered a period of great economic uncertainty it is natural that organisations are being more cautious. In addition However fortune favours the brave and with a three year average of over performance of markets by 5.8pp, M&A remains a very attractive activity for organisations to look towards.”