Acquirers around the world enjoyed their best performance this year since the financial crisis began in 2008, outperforming companies not involved in merger and acquisition (M&A) activity by an average of 4.7 percentage points (pp), according to Towers Watson’s Quarterly Deal Performance Monitor.
The study of completed M&A deals over $100 million, conducted in partnership with Cass Business School in London, shows that during 2013, North America acquirers outperformed those in other regions at 8.1pp above the regional MSCI Index. This represented a significant turnaround from last year, when the region underperformed the index by 1.3pp. Acquiring companies in Asia Pacific outperformed the regional index by 3.5pp (compared to a 0.1pp underperformance in 2012), while performance in Europe came in at 2.2pp above the regional index (compared to 2.4pp in 2012).
“The big M&A story for 2013 is how well acquirers’ stock performed relative to that of non-acquirers across the three regions we track. And North America acquirers showed the most dramatic reversal, underperforming the index in 2012, then outperforming the index so strongly this year,” says Jim McKay, North America M&A practice leader at Towers Watson.
North America continues to lead the other regions in terms of the volume of deals completed, with 375 deals over $100 million so far in 2013. This accounts for nearly 60% of the global total. Asia Pacific has overtaken Europe as the second-most active M&A region, completing 141 deals to Europe’s 104. As a result, for the second year in a row, Europe had the lowest number of completed deals in 2013 and its lowest level since 2009.
The research also shows that in 2013, there were fewer megadeals (those over $10 billion) than in prior years. There were only four such deals in 2013, none of which occurred in the second half of the year.
This marks the first time this has occurred for any six-month period in nearly three years.
The data also show that in 2013, slow deals (those taking over 70 days from announcement to completion) performed better than deals completed rapidly (7.0pp versus 3.1pp). In addition, domestic deals (where the acquirer and the target company are both based in the same country) outperformed cross-border deals by 5.2pp.
“While many companies have cash to spend on acquisitions, and the economic outlook is improving for many countries, the research confirms that most companies are still taking a surprisingly restrained approach to M&A,” says McKay. “Such caution is understandable, but we do know from previous research that companies buying into a rising market tend to outperform their peers to a greater extent than those buying in a flat or declining market. So if the markets remain strong, those companies willing to be among the early movers in their industry are likely to see a clear advantage.”