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Acquirers Continue to Reap Rewards in a Sluggish Market

Posted on 26 Mar 2012

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First-quarter figures from Towers Watson’s Quarterly Deal Performance Monitor (QDPM) show that acquirers of companies have continued to outperform both Global and regional MSCI indices, with deals during the period returning, on average, 2.3 percentage points (pp) above the Global MSCI Index.

Steve Allan, M&A Practice Leader for Europe at Towers Watson, said: “Despite a lethargic market, acquirers that have persisted in completing deals have still reaped positive rewards in the form of outperformance. This suggests that a well-considered and well-structured deal should perform positively even in a difficult climate.”

The results follow an active full year in 2011 which, aggregated, saw the highest number of deals over the year (802) recorded in four years.

However, activity slowed quarter-on-quarter throughout last year and that decline in the number of completed deals has continued into 2012, with just 131 deals so far in the first quarter of 2012. This compares to the record high in the second quarter of 2011 of 227 deals completed. Despite this market slow down, Asia-Pacific, European and North American acquirers outperformed their respective regional indices by 3.9pp, 2.0pp and 0.4pp respectively.

Steve Allan said: “In part, this reduction in activity is as a result of the turbulent market conditions in the second half of 2011.”

The Towers Watson’s study, produced in conjunction with Cass Business School, also shows that for Q1 2012:

  • The European market has been the most volatile environment in which to engage in M&A activities with average acquirer returns fluctuating on a quarter-by-quarter basis; Asia-Pacific representing the most consistent climate for deals
  • Cross-regional deals performed badly during the period, with an average return of -3.1pp; markedly different to the +6.9pp figure from the corresponding period last year
  • Domestic deals have fared better than cross-border deals, with average returns 2.4pp above the Global MSCI Index compared to 1.6pp for cross-border deals
  • There were a higher proportion of cross regional, cross border and cross sector deals amongst Asia-Pacific-based acquirers than for acquirers in other regions
  • North American deals yielded just 0.4pp above index compared to Asia-Pacific’s 3.9pp

Steve Allan said: “The continued outperformance of the Asia-Pacific region is really impressive, particularly given the M&A market’s relatively early stage of development in a number of its constituent countries. This could be because they take a much more considered approach to deals, with the average time to completion being almost twice as long as their American counterparts. In addition, as a younger market, good deals are probably easier to come by. It will be very interesting to see whether the region can maintain this exceptional performance in the long run.”