Global acquirers significantly underperform World Index in the second quarter

The global M&A market underperformed the Index [1] in the second quarter of 2017, according to Willis Towers Watson’s latest Quarterly Deal Performance Monitor (QDPM). While the three-year rolling average performance for global acquirers remains a healthy 5.6 percentage points (pp) above the Index, performance in Q2 2017 was 3.9pp below - the lowest recorded result since the study began in 2008.

The research, run in partnership with Cass Business School, which tracks the number of completed deals over $100m and the performance of share price of the acquiring company against market indices, showed European acquirers to be the stand out dealmakers during an otherwise muted second quarter. They returned a market outperformance of 1.8pp above the index compared to -4.2pp the previous quarter.

Acquirers in North America achieved a more modest increase in outperformance of 0.9pp with 96 deals closing in Q2 2017. However, acquirers from Asia-Pacific showed a sharp decrease from the previous quarter, with an all-time low underperformance of -8.4pp. In the three-year rolling analysis, Asia-Pacific acquirers are still in the top spot due to consistent over-performance in the last few years, 24.2pp above their regional index, followed by European and North American acquirers which have outperformed their regional indexes over the same period by 5.4pp and 1.2pp respectively.

Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: “Europe dealmakers have successfully bucked the global downward trend, perhaps driven by upbeat economic and stock market conditions. The marked drop in performance in other regions, notably Asia, reflects the market’s reaction to greater regulation from governments including the Chinese scrutiny on outbound capital flow and the US national security measures. However, it’s worth noting that despite this quarterly drop, in taking a longer-term view, acquirers are continuing to track well above market indices, maintaining a strong return on the deals that have closed.”

Following a slow start in the number of deals closed in the first half of the year, acquirers of the 183 deals completed so far in Q2 2017 [2] underperformed the market for almost all deal types compared to the corresponding quarter of 2016. There was also a marked decline in the volume of mega deals (worth more than $10bn), with only two completed in this category.

“After an unpredictable political cycle and an equally unpredictable M&A environment that ended with a burst of activity in the last quarter of 2016, it is perhaps no surprise that deal volumes appear to have recently plateaued,” commented Jana Mercereau. “However, the M&A community holds a more optimistic outlook on deal-making for the second half of the year, bolstered by an abundance of capital available at historically low rates coupled with a US administration that is still widely viewed as a boon for M&A deals.”