Europe M&A activity picks up pace, while US market shows signs of a flight to quality

European M&A activity picked up in the third quarter with the number of deals completed, on track to reach a five-year high by the end of the year according to the latest Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM). The North American market, while still accounting for almost 50% of the global total has decreased 15% since last year, in deal volume terms, on a year-to-date (YTD) basis.

The research – run in partnership with Cass Business School – looks at the share performance of companies post deal completion. This quarter acquirers continue to achieve excellent financial performance, with an unbroken run of fifteen consecutive quarters of outperformance, which saw deal-makers returning a market outperformance of 5.2 percentage points (pp) above index , although a slight drop compared to 5.8pp in the prior quarter.

According to the research, 2016 could see the highest number of completed mega deals (worth more than $10bn) since the index began in 2008, with five deals completed this quarter and 22 deals YTD, matching the full year figure for completed mega deals in 2015.

Steve Allan, M&A Practice Leader (EMEA) at Willis Towers Watson, said: “Last quarter we posed the question: ‘Has M&A activity just paused or are we on a plateau?’, but with growing European deal volumes, continued share outperformance for acquirers and a high number of mega deals shoring up the market, M&A activity is clearly strong and acquirers continue to deliver value.”

A regional breakdown of deals shows a significant drop in volumes in North America with 94 deals completed in the quarter, compared to 118 in Q3 2015. This slow-down in the number of completed deals contrasts with an increase in outperformance of North American acquirers from 1.5pp in Q2 2016 to 6.2 pp above index in Q3 2016. Acquirers from Europe not only show a significant increase in deal volume (47 competed deals in Q3 2016 compared to 35 in Q2 2016) but also an outperformance of 7.8pp above the regional index, extending a run of six consecutive quarters of outperformance for European deal makers.

The research shows a significant increase in quick deals in the quarter, 45% of deals compared to 36% in Q2 2016, with a notable difference in the speed of completion between the regions.

Approximately half of deals in North America (60%) and Europe (47%) complete in less than 70 days between announcement and competition, compared to less than one-in-five (18%) in Asia.

Allan continued: “The relative drop in the US volume may be caused by the continued uncertainty arising from the US election, but the outperformance of M&A in the region suggests those that are taking the plunge are being rewarded. The continued momentum of the largest mega deals, across a broad geographic base, indicates a continued belief in the capacity of transactions to transform companies and to lead to increased value.”

The research also shows that the Energy & Power and Telecommunications sectors underperformed their respective market indices, however in all other industry sectors M&A deals performed above the respective sector indices. Cross Border, Cross Regional, Intra Sector significantly improved compared to last quarter, with respective out-performance of 4.4pp, 1.8pp and 8.6pp.