Quarterly Deal Performance Monitor Q1 2011

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1 Quarterly Deal Performance Monitor A study by Cass Business School for Towers Watson Friday 8 April

2 Overview Our study highlights a number of interesting findings: Acquirers continued to outperform the Global MSCI Index [the Index] in the first quarter of 2011, with an average adjusted return of 5.1 percentage points [pp]. With the exception of the first and the third quarters of 2009, acquirers have consistently outperformed the Index for the last three years. The average performance from Q to date is 3.4 pp above the Index. North American acquirers came top of the performance league in the quarterly analysis, with an outperformance of 12.0 pp above the Index. European acquirers followed, outperforming the Index by 7.8 pp. Interestingly, the performance rankings shift when using the MSCI Regional Index as the adjustment index, with European acquirers outperforming their regional index by 12.2 pp whilst North American acquirers only outperform their regional index by 5.1 pp. Asia-Pacific acquirers again struggled to generate the outperformance which was evident in previous reports, with an average adjusted return of 6.2 pp below the Index which is similar to the performance in the previous quarter (Q4 2010) of 5.8 pp below the Index. However, when adjusting the returns with the regional MSCI Index, acquirers in the Asia-Pacific region perform 1.9 pp above the Index. Acquirers embarking on cross-border and cross-regional deals outperformed their more cautious counterparts. Cross-border acquirers performed 10.4 pp above the Index compared to 2.8 pp for domestic acquirers. Crossregional acquirers performed 6.9 pp above the Index whereas their intra-regional counterparts performed 5.1 pp above the Index. Acquirers involved in large deals (over or equal to $1bn deal value) significantly underperformed in comparison to acquirers involved in smaller deals, with a performance of 4.8 pp below the Index compared to 8.3 pp above the Index, respectively. Quick acquirers, i.e. acquirers completing deals in a shorter than average time period, outperformed the Index by 8.3 pp compared to a performance of 1.7 pp above the Index for acquirers involved in slower deals. This study focuses on deals which were completed during the first quarter of To perform a comparative analysis, data from Q have been included. The sample is global and all deals have a value of $100 million or above. In addition, all merger-of-equals deals, and minority and remaining purchases have been excluded as well as those in the Real Estate sector. Analysis has been conducted from the point of view of the acquirer and share price performance compared to various MSCI indices (world, industry and region). Percentage change in share prices is measured from six months before the announcement date to end of corresponding quarter post-completion. Medians have been used throughout. 2

3 M&A Quarterly Analysis 1 Acquirer Performance adjusted to the MSCI World Index () - - 8,5 4,9 5,1 4,3 4,3 3,1 2,1 2,2 Q Q Q Q Q Q Q Q Q Q Q Q ,0-2,8 Acquirers continued to outperform in the first quarter of the year (), with a return of 5.1 pp above the Index. Since the first QPDM (Q1 2008), acquirers have performed better than the Index in all but two quarters with an overall average outperformance of 3.4 pp. The analysis of acquirer performance using average adjusted total returns shows a performance of 5.8 pp above the Index for, which is consistent with the share price analysis. 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. 3

4 1 1 M&A Industry Analysis 16,3 1 12, ,9 4,7 6,2 4,1 Industrials Materials Energy and Power Returns adjusted to the MSCI World Index Returns adjusted to the MSCI Industry Index NB: Q has been excluded from the analysis as the deal activity per quarter for the sub-groups was below the threshold for meaningful analysis (25 deals completed per quarter). 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. 4

5 M&A Regional Analysis 1 Acquirer Returns 1 Acquirer Returns adjusted to the MSCI Regional Index ,2 1-9,0 7,8 3,5 North America Europe Asia-Pacific -1,2 Q ,1 2,2 1,9 North America Europe Asia-Pacific ,2 - -3,5 - NB: Q has been excluded from the analysis as the deal activity per quarter for the sub-groups was below the threshold for meaningful analysis (25 deals completed per quarter). 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. - 5

6 M&A Regional Analysis Acquirer returns adjusted to the MSCI Regional Index 2 North America 1 15,0 Europe Asia-Pacific 12,2 1 5,0 6,4 6,6 5,2 6,8 5,1-5,0 2,5 2,6 2,2 2,1 1,9 1,7 1,2 1,9 0,1 0,4 Q Q Q Q Q Q Q Q Q Q Q Q ,8-0,6-1,3-2,6-3,3-3,0-3,5-3,4 NB: All quarters with a deal activity for the sub-group below the threshold for meaningful analysis (25 deals per quarter) have been excluded. 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

7 M&A Deal Type Analysis ,4 Domestic Cross-border 7,0 6,9 7,2 Intra-sector 10,5 1 1 Cross-sector 5,1 5,0 6,7 3,0 6,4 2,8 1,0 2,8 1,5 Q Q ,0 - Intra-regional Cross-regional -1,2 0,6 Q NB: Q has been excluded from the analysis as the deal activity per quarter for the sub-groups was below the threshold for meaningful analysis (25 deals completed per quarter). 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. 7

8 M&A Deal Type Analysis 1 9,0 8,3 7,3 8,3 Quick deals Slow deals 7,2 7,0 4,3 Q ,0 3,0 3,9 - Large deals (Over or equal to $1bn) 1,7 - Medium deals (Under $1bn) 1,0 - -4,8 Q NB: Large deals include any with a value over or equal to $1bn. Medium deals are any with a value below that threshold. NB: Quick deals include any which have a time to completion (time between announcement date and effective date) of less than the median time to completion of the sample. For, the median time to completion is 67 days; for Q the corresponding number was 78 days. 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. 8

9 Appendix A: Data Descriptives Average Deal Value ($m) Median Deal Value ($m) Q Average Deal Value ($m) Median Deal Value ($m) All 182 1, Asia-Pacific Europe 46 1, North America 85 1, , Rest of the world Consumer Products and Services , Consumer Staples , Energy and Power 30 1, Financials 23 1, , Healthcare High Technology Industrials Materials Media and Entertainment Retail Telecommunications Domestic 94 1, , Cross-border 88 1, Asia-Pacific Europe 38 1, North America Rest of the world Intra-regional 136 1, , Cross-regional Asia-Pacific Europe North America 15 1, ,013 Rest of the world Intra-sector 135 1, Cross-sector , North America Europe Asia-Pacific ,383 Rest of the world Quick deals Slow deals 91 1, ,

10 Appendix B: Sample Restrictions All deals completed between 1 January and 31 March 2011 were downloaded from the Thomson One Banker database (a total of 366 deals). All deals with a value of less than $100 million were removed. All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases were considered. All deals where the acquirer held 50% or more of the target shares prior to the acquisition were removed, hence no remaining purchases were considered. All deals which were announced before 1 January 2009 were removed (only seven deals). All merger-of-equals deals (when identified as merger-of-equals by the database) were removed. All deals where the acquirer did not have a recognised Datastream code for the download of share prices were removed, hence the sample includes only public acquirers. All deals where movement in the acquirer share price was materially unchanged during the period six months prior to deal announcement to six months post-completion were removed (only four deals). All deals where the acquirer or the target were from the Real Estate sector were removed. The final sample is made up of 182 deals. 10

11 Date Announced Appendix C: Top 25 Deals by Value of Transaction Date Effective Acquirer Name Target Name Value of Transaction ($ mil) Share Price Return Adj. Share Price Return (World Index Return, pp) Adj. Share Price Return (Industry Index Return, pp) Adj. Share Price Return (Regional Index Return, pp) 19/07/ /02/2011 International Power PLC GDF Suez Energy Europe 25,056-4% /12/ /01/2011 Comcast Corp NBC Universal Inc 23,500 74% /02/ /02/2011 FirstEnergy and Power Corp Allegheny Energy Inc 8,503-15% /11/ /03/2011 AMP Ltd AXA Asia Pacific Holdings Ltd 7,057-9% /02/ /03/2011 EP Global Opportunities Trust Anglo & Overseas PLC 5,701 7% /09/ /03/2011 Banco Santander SA Bank Zachodni WBK SA 5,629-18% /05/ /02/2011 Norsk Hydro ASA Vale SA-Aluminum Operations 4,948 30% /09/ /02/2011 Prudential Financial Inc AIG Star Life Insurance Co Ltd 4,800 2% /08/ /03/2011 Volkswagen AG Porsche Holding GmbH 4,546-60% /11/ /02/2011 Chevron Corp Atlas Energy Inc 4,136 35% /11/ /01/2011 ABB Ltd Baldor Electric Co 3,895 14% /12/ /01/2011 GE Universal Studios Holding III 3,800 49% /10/ /02/2011 Pfizer Inc King Pharmaceuticals Inc 3,566 17% /02/ /02/2011 Citigroup Inc EMI Group PLC 3,549 5% /10/ /02/2011 GE Dresser Inc 3,000 8% /07/ /02/2011 China Shipbuilding Industrials Co Ltd Dalian Shipbuilding Heavy Ind 2,785 62% /06/ /01/2011 Acergy MS Ltd Subsea 7 Inc 2,496 58% /02/ /02/2011 Gold Reef Resorts Ltd Tsogo Sun Holdings(Pty)Ltd 2,411-12% /12/ /03/2011 Origin Energy and Power Ltd Integral Energy-Ret Businesses 2,268 8% /12/ /03/2011 Inter RAO EES OGK-3 2,163 0% /09/ /01/2011 Novorossiyskiy Morskoy Torgovy PTP 2,153-18% /11/ /02/2011 Bank of Nova Scotia,Toronto DundeeWealth Inc 22 20% /07/ /03/2011 PartyGaming PLC bwin Interactive Ent AG 1,757-32% /06/ /02/2011 Yantai Wanhua Polyurethanes Co BorsodChem Zrt 1,701 7%