Global acquirers are on track to mail their first annual market outperformance since 2016, according to Willis Towers Watson’s latest Quarterly Deal Performance Monitor.
Companies making M&A deals exceeded the World Index by an average of 2.3 percentage degrees during the first nine months of 2021, driven largely by strong performance in the first two quarters of the year, Willis Towers Watson said.
Deal volume in the last three months was the second-highest on record for a third quarter, with 264 deals over US$100 million completed during Q3. At the current pace – with 748 deals finalized so far in 2021 – total M&A activity for the year could outstrip the all-time high of 1,041 completed deals listed in 2015, according to data from Willis Towers Watson and the M&A Research Centre at the Bayes Business School (formerly Cass).
The spike in deals was driven largely by a significant rise in activity by North American buyers, who were accountable for more than half of all deals finalized globally in the third quarter, Willis Towers Watson reported.
“As economic uncertainty melts off from the impact of 2020 lockdowns, companies have embarked on a remarkable deal spree this year, looking to bulk up and address the vulnerabilities it exposed,” said Jana Mercereau, head of corporate M&A consulting for Great Britain at Willis Towers Watson. “With the deal pipeline at such record levels, it is difficult to see M&A activity slowing down in the near term. The ability is strong, however, the challenges of price, regulation and pressure to deliver target returns leave little or no margin for error.”
Acquirers in both North America and Europe struggled in the third quarter to match the positive results attained in the first six months of the year, underperforming their regional indices by 7.2 percentage degrees and 7.6 percentage points, respectively. Only Asia-Pacific buyers outperformed their regional index in Q3, with a quarterly result (+27.8 percentage points) that was their best since Q4 2016 (+72.8 percentage points), the report said.
Nearly a third (215) of the 748 deals completed in the last nine months were valued at over US$1 billion, according to Willis Towers Watson. The trend is expected to continue into Q4, with activity inclined to hit new highs.
“After a period of significant volatility, more companies willing to begin huger deals signals a more stable market, with forces driving global strategic activity still in place, including a positive economic outlook, an abundance of dry powder and access to inexpensive debt,” Mercereau said. “At the same period, competition remains intense, more robust scrutiny of large M&A is expected, and deals are becoming more complicated as companies try to acquire new capabilities often far removed from their traditional core business. As M&A transactions grow in quantity and size, integration planning starting in due diligence will become ever more important for buyers looking to lock in increases and achieve transformative growth.”