Based on share price performance, the latest results from Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM), run in partnership with the M&A Research Center at The Business School (formerly Cass), show that buyers outperformed the MSCI World Index1 in the third quarter of 2020, with a performance of +1.5 percentage points above the index. This is the first positive performance by acquirers since the third quarter of 2017 (+0.7 percentage points).
However, deal volumes are at their lowest level in over a decade (since Q3 2009), with just 121 deals completed in the past three months. The ongoing economic impact and uncertainty caused by the global pandemic have continued to depress deal completions globally.
“It is too early to interpret the flurry of announced deals in recent months as a sign that M&A is on the rebound,” said Duncan Smithson, senior director, M&A, Willis Towers Watson. “Our research on completed deals and their performance provokes a more cautious response. With the volume of completed deals at its lowest in a decade, performance of North American deals at rock bottom, fueled by an enduring pandemic, economic and political uncertainty, buyers need to be both bold and careful.”
Key findings from the QDPM data include:
North American M&A performance is at rock bottom. Deal makers in North America had their worst quarterly performance since the QDPM Index launched in 2008. They significantly underperformed their regional index by –8.6 percentage points, with 52 deals completed in the third quarter of 2020, and jointly completed the lowest number of deals since 2009 (on par with the second quarter of 2020).
European acquirers are resilient. Buyers in Europe are currently +20.4 percentage points above their regional index with 30 deals closing in the third quarter of 2020. This is the first time in two years that Europe has recorded four consecutive quarters of positive performance.
Asia Pacific maintains a positive trend. The region continues the positive performance recorded in the first half of 2020 by outperforming its index with a performance of +4.4 percentage points, with 35 deals closed in the third quarter of 2020. For the first time since 2017, Asia Pacific acquirers have achieved two consecutive quarters of outperformance.
“Instead of collapsing under the weight of COVID-19, M&A deals continue to defy gravity,” said Smithson. “Compared with previous economic cycles, the amount and diversity of capital available for M&A is extraordinary, assisted by historically low interest rates. Buyers who act decisively and with robust due diligence to exploit opportunities during this period of uncertainty could see higher returns than their industry peers and drive long-term growth.”
Willis Towers Watson QDPM methodology
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 are removed; hence, no minority purchases are considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition are removed; hence, no remaining purchases are considered.
Only completed M&A deals with a value of at least $100 million that meet the study criteria are included in this research.
Deal data are sourced from Refinitiv.