A record number of merger and acquisition deals – 72 – were closed in the last two weeks of 2016, compared to just 48 deals for the same period in 2015, according to Willis Towers Watson’s (WTW) latest Quarterly Deal Performance Monitor.
“Deals completed in the last two weeks, buoying up numbers in North America and Asia, specifically driven by a burst of activity in China, brought the year-end figures considerably closer than expected to last year’s deal volumes,” said Jana Mercereau, head of corporate mergers and acquisitions for Great Britain with Willis Towers Watson, in a press release on Monday. “The drop in outperformance of deals may be a sign of dipping investor confidence in the ability of acquirers’ to integrate diverse business models and realize long-term growth.”
Only completed M&A deals with a value of at least US$100 million were included in the research.
The most recent Quarterly Deal Performance Monitor, released by WTW in partnership with Cass Business School, noted that 2016 was a growth year for dealmakers, but fell short of 2015 results.
- Acquirers in 2016 outperformed the MSCI World Index by 5.4% during the year, a drop from 2015, which saw an outperformance of 10.1%. The index is a broad global equity benchmark that represents large- and mid-cap equity performance across 23 developed market countries, including Canada and the United States;
- M&A deals in 2016 dropped slightly to 942 from the record high of 1041 in 2015;
- North America leads on volume of deals completed in 2016 with 429, followed by Asia Pacific with 314 and Europe with 171 (with 28 completed deals for the rest of the world); and
- Domestic deals (7.6% above the index) performed best followed by intra-regional (6.8%), cross-sector (5.8%) and intra-sector (5.4%) deals.
Based on conservations with clients and colleagues, Mercereau issued five predictions on the future of M&A in 2017:
- Local deals will dominate – Economic and political factors will drive in-country deals, as business leaders decide to look domestically for growth through M&A. The fallout from the election in the United States will compel North American businesses to invest at home rather than internationally, Mercereau predicted. Political uncertainty in Europe, with upcoming elections in France, Germany and The Netherlands, coupled with continued fallout from Brexit, and the Italian referendum, will depress deal volumes. “However, dealmakers who are in the right place at the right time will be handsomely rewarded”;
- Bigger, but fewer mega-deals – Significant headwinds will cause acquirers to think twice about their ability to complete and create long-term business value in the largest of deals. Yet, economic and political ambiguity will give rise to opportunities that acquirers will find hard to resist. “The business press has long focused on ‘mega deals” over $10 billion; 2017 may be the year when a $10 billion deal is no longer noteworthy and we see a new class of ‘colossus’ deals worth over $100 billion,” Mercereau said;
- Extracting more value from M&A – 2017 will be a year of reflection. Due to increased scrutiny from shareholders, business leaders will invest more effort in creating greater value from past deal activity. This will also entail divesting non-core and underperforming assets, generating new cash to fund future business development. These divestitures may provide the needed cash to invest in technology internally and in acquiring digital capability as more companies look at digitalization as a competitive advantage.
- M&A and social responsibility – Following populist political movements and the growing social unrest developing in countries, companies expanding overseas in 2017 will be held more accountable for their promised contribution to local economies, including job creation, fair employment and human rights. This will create additional demands for global acquirers looking to expand into new markets as they face heightened scrutiny from government regulators and politicians; and
- Analytics to shorten deal closure time – The use of data by dealmakers, to support due diligence and anticipated integration activities, will result in shortened negotiations and value creation. The use of data in deals will accelerate the adoption of analytics in the future organization, which will enable executives to deliver identified synergies faster, Mercereau predicted.
“2017 will be a transformational year for dealmakers, as they seek growth opportunities,” she concluded. “Facing many challenges, including political and economic uncertainties, there will be an equal number of opportunities that excite M&A practitioners and will benefit successful companies.”