There were more M&A deals completed globally in the third quarter of 2014 than in any prior equivalent period for the last six years according to Towers Watson's Quarterly Deal Performance Monitor (QDPM). The research - run in partnership with Cass Business School - shows that deal volumes are on track to make 2014 the strongest year for M&A since 2012, with 564 deals over $100 million completed so far.The report also shows that acquiring companies around the world continued to outperform the market this quarter, with an average performance of 5.2 percentage points (pp) above a global index2. Mid-cap deals are currently generating the highest return, with acquirers closing medium-sized deals with a performance of 5.4pp above the index, compared to larger deals of over $1 billion averaging a 4pp return. "Slow" deals, which had a time to completion of 70 days or more, significantly outperformed the index at 10.5pp compared to "quick" deals currently at 3.5pp.
Steve Allan, M&A Practice Leader (EMEA) at Towers Watson, said: "This has been a particularly strong third quarter for completed deals, globally speaking, from both a volume and performance perspective. Also noteworthy in this quarter is the re-emergence of the mega-deal market, with two deals having a value of over $10 billion being completed. Whilst the re-emergence of a vibrant M&A market has been foretold many times we are now seeing both good deal volumes and exceptionally strong outperformance from completed deals. Indeed, we may now be looking at the beginning of the next merger-wave."
The Asia-Pacific region was once again the outstanding performer this quarter, with Asian acquirers achieving an impressive outperformance of 14.1pp above their regional index. This is the third consecutive quarter that the Asia-Pacific region has shown a performance over 10pp; a significant improvement upon the region's 2013 figures. In the three-year rolling analysis, Asia-Pacific acquirers are also in the top spot with a performance of 5.5pp above their regional index followed by North American and European acquirers, which have outperformed their regional index over the same period by 3pp and 2.7pp respectively.
North America maintains its regional dominance in terms of M&A volumes, with 121 deals completed in Q3 2014 so far, almost 60 per cent of global activity. Concurrently, there was a fall in the quarterly performance in this region against the regional index; in the third quarter buyers outperformed the regional index by 2.8pp - their lowest recorded outperformance since Q4 2012.
Meanwhile this year's results show that acquirers involved in cross-border deals had lower levels of outperformance than deals within a country's borders: 4.4pp against the index for cross-border deals compared to 9.0pp on a year-to-date basis for domestic deal makers.
Steve Allan said: "While some companies are struggling to achieve their desired levels of outperformance when engaged in cross-border deals, if we look at the broader picture over the longer term there is an enduring pattern of strong results for acquirers. The three-year rolling average outperformance for acquirers globally is currently 2.8pp and the average outperformance since our Quarterly Deals Performance Monitor began in the first quarter of 2008 is 3pp.
"Year-to-date acquirers in all sectors have performed well against industry indices, led notably by consumer staples, healthcare and high-tech. Those bolder companies expanding outside their sector are performing significantly better than intra-sector deals with year-to-date performances of 11.3pp and 6.1pp respectively. It seems that cross-sector acquirers are capitalising on the interest they attract from being a new face in a market and on the growth synergies available within cross-sector deals.
"All in all this quarter's results are encouraging and paint a picture of rapidly growing M&A activity in all sectors and across all regions. The most consistent theme we see in this research is the outperformance of acquirers across the board against global, regional and industry-specific indices. In addition, investors are becoming increasingly aware that those buyers, which do more than simply close deals and successfully integrate the acquired businesses, are more likely to produce sustained longer-term performance."