Acquirers around the world continued a run of post-deal outperformance in the third quarter; beating the MSCI World Index by 3.7 percentage points (pp), according to data from Towers Watson’s Quarterly Deal Performance Monitor (QDPM).
The study of completed M&A deals worth over $100 million, run in partnership with Cass Business School, shows this is the first time since 2011 that acquirers have outperformed the index for three consecutive quarters. It also shows that global M&A deal volumes of this size continued to rise in North America but remain subdued in Asia and Europe.
“In spite of low and falling deal volumes during 2013, the research shows that acquirers that engage in deals, and see them through, continue to reap rewards,” says Steve Allan, M&A Practice Leader (EMEA) at Towers Watson. “The emerging global theme is that acquirers seem to have subdued levels of confidence and are playing it safe and deals that have closed slower have generally done better.”
Allan notes acquirers have tended to stay within their sectors and not go across borders or across regions.
“Clearly this is working for acquirers overall because they have put together an impressive run of outperformance, particularly the more experienced acquirers who have made repeat acquisitions. Indications are that we are entering a more ‘normal’ market phase, with good breadth, for the first time since the turbulence and fire sales of the financial crisis,” adds Allan.
According to the research, acquirers in the Asia-Pacific region outperformed the regional index by 4.0pp in Q3, in line with the region’s median-adjusted performance since Q1 2008 of 4.3pp. In addition, the research shows that large M&A deal volumes are stabilising and that this market, representing around 20% of the global corporate deal market, is again essentially a domestic market where most deals are within countries and the region.
“While Asia-Pacific acquirers seemingly haven’t taken full advantage of the financial crisis to increase their share of the large end of the M&A market to the degree many might have expected, they have consistently outperformed,” says Massimo Borghello, Director, M&A Consulting — Asia Pacific. “This is supported by the performance figures of all acquirers in the three-year rolling period to date, which shows Asia-Pacific acquirers leading the other regions with an outperformance of by 3.1pp, compared to 2.6pp and 1.5pp for Europe and North America respectively. Their seemingly cautious approach to M&A, with a focus on domestic consolidation and growth over the years is clearly paying off.”
The research shows that North American acquirers outperformed the regional index by a record 10.3pp in Q3, significantly higher than their last peak of 6.6pp achieved in Q4 2008. This also represents a fourth successive quarter of increasing outperformance, a first in the region since the research began.
The research shows that during the last five years this market has had lower volatility in terms of deal volumes and acquirer performance than the other regions; and recent trends show stability increasing further.
“North America is driving overall market activity, as might be expected from the largest and most mature of the three regions, and the message is clear: M&A is back. It is also interesting to note that while it represents around 60% of the global corporate market for these larger deals, it is essentially a domestic market as most large deals are not cross border,” says Allan.
The Q3 research shows that activity by European acquirers has remained flat since mid-2012, with low levels of activity and relatively poor performance, underperforming their regional index by 1.6pp in this quarter.
“European M&A is still clearly being negatively impacted by the lack of any real economic progress, but could also be due to it being one of the more difficult M&A markets attributable to, in part, the regulatory environment and number cross border deals. The main take-away for 2013 so far in this region seems to be that some are acquirers are doing well, while others are really not,” notes Allan.