Quality shines through, even as M&A deal volumes fall globally

ARLINGTON, Va., Dec. 21, 2016 -- The latest Quarterly Deal Performance Monitor (QDPM) from leading global advisory, broking and solutions company Willis Towers Watson (NASDAQ:WLTW) suggests a significant slowing of deal volumes in the fourth quarter of the year. Yet those deals that did close were high performing and showed an outperformance of 0.4 percentage points (pp) over the index.^* On a year-to-date (YTD) basis, acquirers have outperformed the index by 5.4 pp.

The research — run in partnership with Cass Business School — shows deal volumes for Q4 2016 so far at 201, fewer than the 307 deals in Q4 2015, though Q4 2016 may still show strength in the final two weeks and is predicted to finish the year with an additional 40 completed deals.

“Deal volumes dropped globally, driven by the lower levels of transactions in North America and Europe,” said Mary Cianni, global M&A practice leader, Willis Towers Watson. “The results suggest that despite globally low interest rates acting as an incentive for companies to raise capital for M&A activity, the economic uncertainty post-Brexit and pre-U.S. election has caused companies to wait and see before they embark on new activity. However, the number of deals in North America suggests that, as stock markets have performed well, confidence in M&A deals has continued postelection.”

Regionally, the research reveals that North American acquirers are the most active, with a volume of 84 deals and a market performance of 4.0 pp above the regional index, but still lower than the previous quarter. Acquirers in Asia Pacific show a significant decrease in performance and are currently just above the regional index, at 0.3 pp, but have a slightly improved number of deals closing in Q4 2016 versus the previous quarter. Acquirers in Europe show an underperformance of –4.3 pp, in contrast to an outperformance of 11.6 pp above their regional index in the previous quarter.

The industry analysis shows that the Consumer Products and Services, Financial Services, Health Care, High Technology, Materials, and Telecommunications sectors are all underperforming their respective indices during the fourth quarter. However, in the overall results for YTD 2016, with the exception of Energy and Power, High Technology, and Telecommunications, all sectors have outperformed their respective indices.

“Almost all industries are showing a positive trend in performance of M&A deals this year, suggesting the days of pharma dominance in M&A activity may be long gone. M&A has become a mainstream way to look for growth and one that consistently shows higher return on investment than other growth strategies,” said Cianni.

The performance of acquirers in large, domestic, intra-regional, cross-sector and slow deals is down in Q4 2016 and is significantly lower than both Q3 2016 and Q4 2015. In a reversal of trend, mega, midsize, cross-border, cross-regional, intra-sector and quick deals have underperformed the market this quarter. Year to date, all deal types have shown an over-performance in the market.

“This quarter has seen a natural slowdown, but we need to be wary of taking one quarter’s results and forming a trend,” said Cianni. “We have entered a period of great economic uncertainty, and it is natural that organizations are being more cautious. With a three-year average of over-performance of markets by 5.8 pp, M&A remains a very attractive activity for organizations to look toward.”

Notes to editors

Acquirer outperformance compared to index* by deal type in percentage points

 Source: Willis Towers Watson QDPM

Acquirer outperformance by industry, adjusted to MSCI Industry Index in percentage points

Source: Willis Towers Watson QDPM

Willis Towers Watson QDPM Methodology

• All analysis is conducted from the perspective of the acquirer.
• Share-price performance within the quarterly study is measured as a percentage change in share price from six months prior to the announcement date to the end of the quarter.
• All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered.
• All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered.
• Only completed M&A deals with a value of at least $100 million are included in this research.
• Deal data are sourced from Thomson Reuters.

About Willis Towers Watson Human Capital M&A

Willis Towers Watson’s Human Capital M&A practice advises clients on the human capital aspects in a deal situation, ranging from key elements of a financial due diligence through to the integration of the workforce post-completion.

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

Footnote

*MSCI World Index is used as the default.

Media contact

Ed Emerman: +1 609 275-5162
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