The M&A research, run in partnership with Cass Business School, tracks the number of completed deals over $100m and the performance of share price of the acquiring company against market indices. The findings also revealed that the final quarter of 2017 has proved especially challenging to deliver value, with dealmakers significantly underperforming the market by 5.6pp below the index. This is the lowest quarterly figure recorded since the QDPM research began in 2008.
Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: “Global conditions for M&A in 2017 have been tough and delivering a successful deal and realising value is increasingly difficult. Inflated price-to-earnings ratios have made deals more expensive, with companies often paying large premiums in a bidding war or as a defensive tactic, and making it increasingly difficult to realise a strong return.
However, of the 198 deals completed so far in this quarter, 88 still outperformed the Index. So, we are still seeing value in M&A activity for many but acquirers need to choose their targets carefully and integrate their acquisitions well. In today’s challenging market, improvements in deal selection, deal governance and integration focus will significantly boost the market’s success rate and help acquirers achieve critical deal objectives, including higher returns for shareholders.
Although dealmakers have underperformed in 2017, the QDPM analysis shows the three-year rolling average performance for global acquirers remains positive at 5.0pp, with longer-term performance since 2008 currently at 3.6pp, which indicates acquirers over the long term are continuing to track well above market indices, maintaining a strong return on completed deals. These longer term figures support the proposition that, done well, deals are a robust route to corporate growth and do add value to shareholders.
Regionally, European acquirers with 32 deals continue to be the stand out dealmakers during an otherwise challenging fourth quarter, returning a market outperformance of 8.7pp above the index compared to 3.7pp the previous quarter.
While acquirers in North America showed an underperformance of 4.3pp with 101 deals in Q4 2017, deal makers from Asia-Pacific were significantly lower with a dramatic underperformance of 29.2pp, which is an all-time low for the region.
In the three-year rolling analysis, Asia-Pacific acquirers still remain in the top spot due to their high performance most of the last three years, with 17.2pp above their regional index followed by European and North American acquirers which have outperformed their regional indexes over the same period by 6.2pp and 1.7pp respectively.
Following a slow start in the number of deals closed globally in the first half of the year, deals closed in Q4 are currently at 198 (848 YTD), compared to 273 (942 in full-year 2016) for the same period last year, with a significant drop in volume in Asia-Pacific compared to prior years.
The analysis reveals traditionally challenging deal types, such as Large, Cross-sector, and Slow deals to have particularly struggled to add value in Q4 2017. Compared to the same period in 2016, the Technology sector also stands out as having significantly underperformed other sectors in the final quarter of 2017 by 23.9pp.
“Technology isn’t just for tech companies anymore, with half of all such M&A deals in the last three months being made by non-tech sectors,” commented Jana Mercereau. “No company can afford to ignore the impact of technology and for an increasing number of organisations, the answer is to buy rather than build in order to acquire needed technologies, capabilities, and products and to close innovation gaps.
The rapid pace of tech acquisitions has pushed up prices, but this has not deterred buyers who clearly see some targets as must–have assets, even if the potential for value creation in the short to medium term is lower. Successful acquirers of tech capabilities will need a focused strategy, a tailor-made M&A process for tech targets and talent, and to build the right corporate organisation to find, execute and integrate innovative tech firms.
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.
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