Share prices of global acquirers continue to underperform World Index in the third quarter M&A Quarterly Deal Performance Monitor: Q3 2017
Share prices of global acquirers continue to underperform World Index in the third quarter New research reveals global trend for successful M&A deals becoming increasingly difficult to deliver as markets react to changing political winds The global M&A market continues to struggle to add value, underperforming the Index in 2017 for the second quarter this year, which is a trend not seen since 2012, according to Willis Towers Watson s latest Quarterly Deal Performance Monitor (QDPM). The M&A research, run in partnership with Cass Business School, which tracks the number of completed deals over US$100 million and the performance of share price of the acquiring company against market indices, showed performance in Q3 2017 was 1.7pp (percentage points) below that Index and essentially flat (0.2pp below Index) when looking at the past four quarters together. Figure 1. M&A quarterly analysis of market performance, global sample 20.0 15.0 Median-adjusted performance of all acquirers throughout the period Median-adjusted performance of all acquirers over a three year rolling period Median-adjusted performance of all acquirers over one-year rolling period 17.1 12.9 11.5 10.0 8.5 7.8 8.1 9.3 5.0 0.0-5.0 Q1 2008 Q2 2008 2.1 2.0 4.0 2.2-1.0-2.8 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 4.0 4.3 3.1 4.3 4.9 5.1 4.1 2.5 1.5 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012-0.8-2.7 1.7-0.2 2.6 4.1 3.9 6.2 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 4.0 2.6 3.2 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 5.3 5.8 0.6-1.3 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 0.8-1.7 Note: 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. 1 MSCI World Index is used as default, unless stated otherwise. 2 willistowerswatson.com
Figure 2. M&A regional analysis 2016 and 2017 14 12 10 8 Acquirer Returns Adjusted to the MSCI Regional Index 2016 12.4 2017 7.3 Growing government, antitrust and regulatory challenges are likely to have had a significant impact on the volume of M&A deals in 2017 and the marked drop in performance globally, suggests Willis Towers Watson. The most recent example of tighter rules is the consultation paper just issued by the UK Takeover Panel to bring in additional requirements which will require more detailed information from bidders at an earlier stage in the deal process, and more transparency on the reality of post-deal implementation. 6 4 2 2.3 0.8 2.9 0-2 -4-6 -5.5-8 North America Europe Asia-Pacific Note: 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. While deal activity in the UK and wider Europe remains healthy the region is bucking the global trend. On a broader global scale we are seeing increased pressure on dealmakers particularly for larger and cross-border deals. Whilst some of these pressures reflect political realities others, such as some of the Takeover Panel s ideas, formalise in a very public manner what many leading acquirers already regard as internal best-practice. Overall these pressures are shining a light on the reality that delivering a successful deal and realising value is difficult. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson 2 The QDPM research for Q3 2017 includes deals completed between 1 April 2017 and 30 September 2017. The number of deals completed in Q3 2017 was [ ]. 3 M&A Quarterly Deal Performance Monitor: Q3 2017
Our study highlights a number of other interesting findings: UK acquirers have already secured nine deals so far in Q3 2017 and are expected to improve on the ten deals completed in the same quarter last year. European acquirers generally also continue to be the stand out dealmakers during an otherwise challenging third quarter, returning a market outperformance of 6.8pp above the Index compared to 4.3pp the previous quarter. While acquirers in North America showed an underperformance of 3.0 pp in Q3 2017, deal makers from Asia-Pacific were significantly lower with an underperformance of 12.1pp against their respective regional indexes, which is an all-time low for the region. In the three-year rolling analysis, Asia-Pacific acquirers still remain in the top spot due to their consistent performance in the last three years, with 20.7pp above their regional Index followed by European and North American acquirers which have outperformed their regional indexes over the same period by 5.9pp and 1.1pp respectively. Following a slow start in the number of deals closed globally in the first half of the year, deals closed in Q3 are currently at 178 (612 YTD) with significant drops in North America and Asia-Pacific compared to prior years. There was also a marked decline in the volume of mega deals (worth more than US$10 billion), with only three completed in this category (9 YTD). The overall results for 2017 so far show, with the exception of Consumer Staples, Energy and Power, Industrials and Telecommunications, all other sectors have underperformed their respective indices. 4 willistowerswatson.com
Willis Towers Watson Quarterly Deal Performance Monitor Methodology in partnership with Cass Business School This study focuses on deals which were completed during the second quarter of 2017. In order to perform a comparative analysis, data from Q2 2016 and Q1 2017 have been included. The sample is global, and all deals have a value of US$100 million or above. In addition, all merger-of-equals deals, and minority and remaining purchases have been excluded, as well as those in the Real Estate sector. The analysis has been conducted from the point of view of the acquirer and share price performance compared to various MSCI indices (world, industry and region). Percentage changes in share prices are measured from six months before the announcement date to the end of the corresponding quarter postcompletion. Medians have been used throughout. About Human Capital M&A Willis Towers Watson s Human Capital M&A practice advises clients on the human capital aspects in a deal situation. This ranges from key elements of a financial due diligence through to the integration of the workforce post-completion. Further information For further information about the research, or for help with your M&A activity, please contact your Willis Towers Watson consultant or: Jana Mercereau +44 20 7170 2835 jana.mercereau@willistowerswatson.com It s worth noting that despite this second quarterly drop and the prospect of deeper government intervention in deal making in the UK and globally, acquirers have continued to track well above market indices, maintaining a strong return on deals that have closed and providing strong evidence that, done well, M&A can deliver significant value. The three-year rolling average performance for global acquirers still remains a healthy 5.4pp above the Index and an abundance of capital and cheap debt mean a flurry of deals could yet unfold during the remainder of 2017. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson 5 M&A Quarterly Deal Performance Monitor: Q3 2017
Appendix A: Data descriptives: Q3 2016, Q2 2017 and Q3 2017 Q3 YTD 2017 Median Deal Value ($m) 2017 Average Deal Value ($m) All 178 307 612 1,184 Asia-Pacific 56 211 200 544 Europe 33 685 93 1,881 North America 84 342 300 1,355 Rest of the world 5 1,805 19 1,820 Quick deals 73 264 229 489 Slow deals 105 404 383 1,600 Large deals (over or equal to $1bn) 42 2,175 147 3,940 Mega deals (over or equal to $10bn) 3 9 22,144 Industry: Consumer Products & Services 16 473 43 895 Consumer Staples 19 380 48 2,453 Energy & Power 11 512 64 1,897 Financials 32 244 103 878 Healthcare 14 704 50 1,342 High Technology 25 238 86 974 Industrials 27 219 86 611 Materials 19 431 67 1,092 Media & Entertainment 4 335 19 760 Retail 5 328 25 1,098 Telecommunications 6 503 21 1,821 6 willistowerswatson.com
Appendix B. Top 25 deals by value of transaction: Q3 2017 Date announced Date effective Acquirer name Target name Value of transaction ($M) 21/10/2016 25/07/2017 British American Tobacco PLC Reynolds American Inc 49,054 20/02/2017 14/08/2017 Vale SA Valepar SA 20,957 16/06/2017 28/08/2017 Amazon.com Inc Whole Foods Market Inc 13,561 07/09/2016 01/09/2017 Micro Focus International PLC Hewlett Packard Entrp-Segment 8,352 18/12/2016 06/07/2017 Fairfax Financial Holdings Ltd Allied World Assur Co Hldgs 6,108 18/04/2017 30/07/2017 Cardinal Health Inc Medtronic PLC-Patient Care 6,100 12/05/2017 08/09/2017 Drillisch AG 1&1 Telecommunication SE 5,738 15/12/2016 06/07/2017 Lonza Group AG Capsugel Inc 5,500 04/03/2017 14/08/2017 Standard Life PLC Aberdeen Asset Management PLC 4,642 18/07/2017 17/08/2017 McCormick & Co Inc Reckitt Benckiser Grp-Food Div 4,200 12/12/2016 03/07/2017 Amundi SA Pioneer Investment Mgt 3,739 15/05/2017 10/08/2017 Moody's Corp Bureau Van Dijk 3,281 24/01/2017 01/09/2017 Yancoal Australia Ltd Coal & Allied Industries Ltd 3,100 10/04/2017 10/09/2017 Knight Transportation Inc Swift Transp Co 2,959 16/08/2015 04/07/2017 Hubei Sanonda Co Ltd Adama Agricultural Solutions 2,916 13/01/2017 12/07/2017 Quinpario Acquisition Corp 2 Novitex Holdings Inc 2,800 18/05/2017 12/09/2017 Elis Services SA Berendsen PLC 2,785 15/05/2017 07/08/2017 Vodacom Group Ltd Vodafone Kenya Ltd 2,594 11/05/2017 03/07/2017 Vivendi SA Havas SA 2,518 08/05/2017 11/07/2017 Coach Inc Kate Spade & Co 2,380 10/05/2017 01/08/2017 INC Research Holdings Inc inventiv Health Inc 2,182 06/06/2017 17/07/2017 SemGroup Corp Buffalo Parent Gulf Coast 2,168 21/02/2017 07/09/2017 Ternium SA Thyssenkrupp Slab Intl BV 1,805 18/04/2017 03/07/2017 Post Holdings Inc Weetabix Ltd 1,759 31/10/2016 10/08/2017 Xinjiang Urban Constr (Grp) Co Zhuolang Intelligent Mach Co 1,518 7 M&A Quarterly Deal Performance Monitor: Q3 2017
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