Global M&A Conversion Rates Continue to Decline

Global volume and value of announced M&A rose by 4% and 25% respectively, in Q4 2012, compared to the previous quarter. Despite this rise in activity levels, the conversion rate of deals progressing through to completion declined by 5% quarter-on-quarter (q-on-q), according to the Ernst & Young M&A Tracker.


For the full year 2012, M&A volumes fell by 11% year-on-year with the corresponding total of announced deal value falling by 9%. 2012 figures were also slightly lower than 2010 figures, by 2% and 6% for volumes and value, respectively.


“This year has seen activity levels fluctuate quarter to quarter, but concern over the Eurozone crisis and US fiscal cliff subdued deal making in 2012, despite a last minute uptick," notes Dave Murray, Ernst & Young’s Europe, Middle East, India and Africa Transaction Advisory Services Markets Leader.


Murry says executives continue to take a cautious and watchful approach, until longer term resolutions are agreed to stabilize the global economy and confidence in it.


"Management teams are instead turning inwards, focusing more on optimizing internal operations to drive margins and put businesses in a stronger position for when confidence returns,” adds Murry.


Comeback of larger deals
In Q4 2012 there has been a significant increase in the average value of transactions announced in most markets. Globally, average value rose by 20% from US$302 million in Q3 2012 to $364 million in Q4 2012.


The average deal value of completed bids is also increasing, currently at $231 million, up by 9% from  Q3 2012’s $211 million.


“The increase in average announced deal value – the second highest q-on-q increase since the start of the M&A Tracker in Q1 2010 – could well be an indicator that confidence in M&A is potentially returning, with larger deals now back in the headlines as we have all seen,” says Murray.


Conversion rates lower due to an increase in pending bids
In yet another sign of global macro-economic uncertainty continuing to dent corporate confidence, global M&A conversion rates are constantly falling. In both 2010 and 2011, the average conversion rate was 67%. In 2012, that conversion rate fell to an average of 62%.


According to Murray, this was not driven by an increase in the level of withdrawn deals, which have remained stable from year to year, but rather the number of pending bids has increased significantly in the last year, which provides some positive news.

In a sign of continued challenges for transaction completion, the number of deals completing in the last nine months of the year is currently at their lowest since the first quarter of 2010. In Q4 2012, Ernst & Young is also seeing the longest average time to completion (including outstanding or pending bids), which increased for two consecutive quarters and is currently at its highest of 58 days.


“With deals taking longer to deliver, leading corporates are also more thoughtful about their approach, whether this involves reassessing their corporate strategy, finding new alternatives to traditional deal structures or revisiting underperforming ventures,” Murray comments.

Public bids provide flicker of activity

One part of the M&A activity arena which has shown signs of recovery in the last quarter of 2012 is the interest in public bids.


In Q4 2012, the volume of public bids was up by 12% q-on-q and the corresponding announced deal value rose by 27%.


In terms of the annual figures, activity has been relatively stable, with deal volume in 2012 increasing by 3% year-on-year (y-on-y), although total announced deal value has decreased by 5%.


Ernst & Young notes that in Q4 2011, total announced deal value in this category was down by 33% q-on-q, which was then followed by two quarters of low levels of activity. 2012 ends on a more positive note, which could be a leading indicator of activity picking up in 2013.


“Focused, strategic deals will continue to be in vogue in 2013. However, the completion of transactions will continue to pose challenges for the management to get them over the finishing line," says Murray.


Murray says both the pre-bid and the post-announcement periods will continue to remain longer than the historical average with a general sense of less urgency in the M&A market.


"To get a deal done takes longer to agree and to avoid unpleasant surprises it requires even more skill in careful planning and execution than before.”


Suggested Articles

Some of you might have already been aware of the news that Questex—with the aim to focus on event business—will shut down permanently all media brands in Asia…

Some advice for transitioning into an advisory role

Global risks are intensifying but the collective will to tackle them appears to be lacking. Check out this report for areas of concern