Quality shines through as M&A deal volumes fall globally. Q Quarterly Deal Performance Monitor with year-end overview and 2017 M&A predictions

Transcription

1 Quality shines through as M&A deal volumes fall globally Q Quarterly Deal Performance Monitor with year-end overview and 2017 M&A predictions

2 Shareholders witnessed a 5% increase in value creation from M&A in 2016 The global M&A market continues to be a strategic driver of corporate growth, as executives seek to create greater value for their organisations in challenging economic times. This document summarises the year in review for the performance of transactions in 2016, along with our predictions for future M&A trends. Willis Towers Watson s Q Quarterly Deal Performance Monitor (QDPM), launched in 2008, revealed a significant slowing of deal volumes in the fourth quarter of last year. On a positive note, transactions that did close in the same period of time outperformed the index 1 by 0.6 percentage points (pp); continuing a trend from the past 36 quarters, where acquirers have outperformed, illustrating that growth by M&A does help deal makers achieve greater shareholder value. The long-standing research run in partnership with Cass Business School showed deal volumes reduced from 307 in Q4 2015, to 273 in Q The fourth quarter rally resulted in a strong ending for 2016 with 72 deals completing in the final weeks of the year. Figure 1. M&A quarterly analysis volumes (number) 350 Number of completed deals per quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Q3 11 Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Q3 Q MSCI World Index is used as default. 2 willistowerswatson.com

3 "Despite geopolitical events in the last six months of 2016, driving lower M&A activity, I expect to see a bounce back in deal volumes in 2017, as confidence returns to the market. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson Figure 2. Global M&A deal performance and deal volumes Year Share price return adjusted to World Index return (percentage points) Number of completed global M&A deals over US$100 million , Regional analysis North American acquirers were the most active with 429 transactions in 2016, followed by Asia Pacific and Europe, with 314 and 171 closed deals respectively. Looking at the performance of M&A in Q4 2016, North America (6.0 pp) outperformed Asia Pacific (3.7 pp) and Europe (-2.0 pp) against the MSCI World Index. Figure 3. Acquirer returns adjusted to the MSCI Regional Index North America 14.6 Europe 3.7 Asia Pacific Q Q Quarterly Deal Performance Monitor

4 M&A activity in Europe was negatively impacted by the UK's vote to leave the EU, with a drop in both volume and performance. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson Industry analysis Of the nine industries covered in the research, only four outperformed the index in Q These were Energy and Power, Industrials, Healthcare and Materials. It is worth pointing out that all industries outperformed the index in Q Figure 4. M&A industry analysis for Q and Q Percentage points Consumer products and services Consumer staples Energy and power Financials Healthcare High technology Industrials Materials Telecommunications Q Q NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise. Note that the sub-sample analyses for which the data points have grey coloured font include fewer than 25 deals, i.e. below our significance level, and should, therefore, be viewed as indicative. (Note Media and Entertainment and Retail are excluded due to non-availability of the respective index). 4 willistowerswatson.com

5 Mega deals drive value Despite an overall downward trend in the performance of M&A deals in Q4 2016, mega deals shone through as an activity that has grown in strength throughout the year. There was an increase of 3.3 pp in deal performance from Q3 to Q witnessed a significant drop in the performance of cross-border, cross-sector and quick deals compared to the previous year. The inherent complexity of cross-border deals has resulted in the prolonging of M&A integrations. As acquirers are looking for faster growth opportunities, they will look domestically. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson Figure 5. M&A deal type analysis: share price return Q Q Q Mega deals (over or equal to $10 billion) Large deals (over or equal to $1 billion) Medium-sized deals (under $1 billion) Domestic Cross-border Intra-regional Cross-regional Intra-sector Cross-sector Quick deals Slow deals NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise. Quick deals refer to those transactions which had a median time to completion of less than 70 days, whereas slow deals are those which had a time to completion of more than or equal to 70 days for the period. 5 Quarterly Deal Performance Monitor

6 Conclusion A combination of micro- and macroeconomic trends, shown in research produced over the past nine years by Willis Towers Watson, show that despite companies perfecting the execution of M&A, transactions are becoming increasingly complex to close and integrate. In 2017 and beyond, what is required to succeed in M&A is experience. This can never be underestimated, nor undervalued. It's knowing the roadblocks and how to effectively overcome obstacles in the deal cycle. Even before that, savvy deal makers know what to look for in an organisation, matching the acquirer's needs today and in the future with the potential synergies that can be achieved by an acquired or combined company. In some geographies such as Europe, anticipating fast moving changes in industries including regulations may create unexpected business opportunities that require quick action. While research provides a framework to assess the business performance of deals, growth of M&A is ultimately driven by an unpredictable human factor and the confidence they have in the future. Figure 6. M&A quarterly analysis Percentage points The yellow line below (4.2 pp) shows the median-adjusted performance of all acquirers throughout the period Q1 Q2 Q3 Q4 Q1 Q Q3 Q4 Q1 Q Q3 Q4 Q Q Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q The blue line below (5.9 pp) shows the median-adjusted performance of all aquirers over a three-year rolling period 11.5 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Q3 Q4 Q1 Q2 Q3 Q NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise. 6 willistowerswatson.com

7 Year-end overview: was a growth year for deal makers but fell short of 2015 results, according to the latest M&A performance data. Acquirers in 2016 outperformed the index 1 by 5.4% during the year, a drop from 2015, which saw an outperformance of 10.1%. M&A deals in 2016 dropped slightly to 942 from the record high 2 of 1041 in North America leads on volume of deals completed in 2016 with 429, followed by Asia Pacific with 314 and Europe with 171 (with 28 completed deals for the rest of the world). Domestic deals (7.6% above the index) performed best followed by intra-regional (6.8%), cross-sector (5.8%) and intra-sector (5.4%) deals. A record number of deals (72) were closed in the last two weeks of 2016, compared to just 48 deals for the same period in Deals completed in the last two weeks, buoying up numbers in North America and Asia, specifically driven by a burst of activity in China, brought the year-end figures considerably closer than expected to last year s deal volumes. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson M&A predictions: 2017 Based on conversations with clients and colleagues, Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson, has shared her predictions on the future of M&A in 2017: 1. Local deals will dominate Economic and political factors will drive in-country deals, as business leaders decide to look domestically for growth through M&A. The fallout from the US election will compel North American businesses to invest at home rather than internationally. Political uncertainty in Europe, with upcoming elections in France, Germany and The Netherlands, coupled with continued fallout from Brexit, and the Italian referendum, will depress deal volumes. However, deal makers who are in the right place at the right time will be handsomely rewarded. 1 MSCI World Index is used as default. 2 Willis Towers Watson Quarterly Deal Performance Monitor (QDPM) began recording data in Quarterly Deal Performance Monitor

8 2. Emergence of the 'colossal' deal Significant headwinds will cause acquirers to think twice about their ability to complete and create long-term business value in the largest of deals. Yet, economic and political ambiguity will give rise to opportunities that acquirers will find hard to resist. The business press has long focussed on mega deals' over $10 billion; 2017 may be the year when a $10 billion deal is no longer noteworthy and we see a new class of 'colossal' deals worth over $100 billion. 3. Extracting more value from M&A 2017 will be a year of reflection. Due to increased scrutiny from shareholders, business leaders will invest more effort in creating greater value from past deal activity. This will also entail divesting non-core and underperforming assets, generating new cash to fund future business development. 4. M&A and social responsibility meet Following populist political movements and the growing social unrest in developing countries, companies expanding overseas in 2017 will be held more accountable for their promised contribution to local economies, including job creation, fair employment and human rights. This will create additional demands for global acquirers looking to expand into new markets as they face heightened scrutiny from government regulators and politicians. 5. Analytics to shorten deal closure time The use of data by deal makers, to support due diligence and anticipated integration activities, will result in shortened negotiations and value creation. The use of data in deals will accelerate the adoption of analytics in the future organisation, which will enable executives to deliver identified synergies faster. Captured savings will fund business critical digital transformation projects will be a transformational year for deal makers as they seek growth opportunities. Facing many challenges, including political and economic uncertainties; there will be an equal number of opportunities that excite M&A practitioners and will benefit successful companies. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson 8 willistowerswatson.com

9 Willis Towers Watson's Quarterly Deal Performance Monitor methodology in partnership with Cass Business School: 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 sourced from Thomson Reuters. About Human Capital M&A Willis Towers Watson s Human Capital M&A practice advises clients on the human capital aspects in a deal situation. This ranges from key elements of a financial due diligence through to the integration of the workforce post-completion. Further information For further information about the research, or for help with your M&A activity, please contact your Willis Towers Watson consultant, or Jana Mercereau jana.mercereau@willistowerswatson.com 9 Quarterly Deal Performance Monitor

10 Appendix A. Data descriptives: 2015/ Average deal value ($m) Median deal value ($m) 2016 Average deal value ($m) Median deal value ($m) All 1,041 1, , Asia Pacific Europe 180 1, , North America 488 1, , Rest of the world , Consumer products and services 66 1, , Consumer staples 64 1, , Energy and power 119 1, , Financials 131 1, , Healthcare 131 2, , High technology , Industrials , Materials Media and entertainment , Retail 36 1, Telecommunications 42 2, , Domestic 721 1, , Cross-border 320 1, , Asia Pacific ,283 Europe 131 1, ,536 North America 116 1, ,275 Rest of the world ,184 Intra-regional 826 1, , Cross-regional 215 1, , Asia Pacific ,430 Europe 72 1, ,761 North America 88 1, ,080 Rest of the world ,306 Intra-sector 675 1, , Cross-sector , Asia Pacific ,101 Europe 44 1, ,023 North America 138 1, ,182 Rest of the world Quick deals Slow deals 634 1, , Large deals (over or equal to $1 billion) Mega deals (over or equal to $10 billion) , , willistowerswatson.com

11 Appendix B. Top 25 deals by value of transaction: 2016 Date announced Date effective Acquirer name Target name Value of transaction ($m) 16/09/ /10/2016 Anheuser-Busch Inbev SA/NV SABMiller PLC 101,101 08/04/ /02/2016 Royal Dutch Shell PLC BG Group PLC 69,445 26/05/ /05/2016 Charter Communications Inc Time Warner Cable Inc 55,638 27/07/ /08/2016 Teva Pharmaceutical Industries Allergan PLC-Generic Drug Bus 38,750 28/05/ /02/2016 Avago Technologies Ltd Broadcom Corp 37,849 18/07/ /09/2016 SoftBank Group Corp ARM Holdings PLC 31,879 10/08/ /01/2016 Berkshire Hathaway Inc Precision Castparts Corp 31,595 04/08/ /06/2016 Shire PLC Baxalta Inc 30,952 01/07/ /01/2016 ACE Ltd Chubb Corp 28,534 13/06/ /12/2016 Microsoft Corp LinkedIn Corp 26,639 25/01/ /09/2016 Tyco International PLC Johnson Controls Inc 22,660 02/11/ /06/2016 Visa Inc Visa Europe Ltd 21,355 15/12/ /01/2016 BT Group PLC EE Ltd 18,797 23/05/ /12/2016 Maanshan Dingtai Rare Earth & SF Holding (Group) Co Ltd 16,831 21/10/ /05/2016 Western Digital Corp SanDisk Corp 16,124 14/12/ /04/2016 Newell Rubbermaid Inc Jarden Corp 15,435 09/07/ /10/2016 Coty Inc Procter & Gamble Co-Beauty 14,918 30/06/ /12/2016 Jinan Diesel Engine Co Ltd CNPC Capital Co Ltd 14,483 22/08/ /09/2016 Pfizer Inc Medivation Inc 14,118 07/11/ /04/2016 China Yangtze Power Co Ltd Sanxia Jinsha River Chuanyun 14,011 14/04/ /02/2016 Nokia Oyj Alcatel Lucent SA 13,780 16/11/ /09/2016 Marriott International Inc Starwood Hotels & Resorts 13,568 17/03/ /07/2016 TransCanada Corp Columbia Pipeline Group Inc 12,996 26/08/ /04/2016 Schlumberger Ltd Cameron International Corp 12, Quarterly Deal Performance Monitor

12 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 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimise 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. Willis Towers Watson 71 High Holborn London WC1V 6TP Towers Watson Limited (trading as Willis Towers Watson) is authorised and regulated by the Financial Conduct Authority in the UK. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. To unsubscribe, eu.unsubscribe@willistowerswatson.com with the publication name as the subject and include your name, title and company address. willistowerswatson.com/social-media Copyright 2017 Willis Towers Watson. All rights reserved. WTW-GL-16-PUB-1629e willistowerswatson.com