Global number of large deals closed drops to near low

06 January 2020 Consultancy.eu

2019 was a mixed year for dealmakers globally, according to data from Willis Towers Watson, Cass Business School and Refinitiv. While interest in deals remained high, the number of large transactions that came to a successful close dropped, and less than half of these deals managed to add value to shareholders.

Data sourced from the latest ‘Deal Performance Monitor’ shows that 699 deals with a transaction value of higher than $100 million closed in 2019, significantly lower than the 904 deals in 2018. Although some December deal data is still being populated at the time of writing, last year’s merger & acquisitions market is seeming to close the year at the second lowest deal volume since 2010 (688 deals). 

Gabe Langerak, head of M&A Western Europe at Willis Towers Watson, on the development: “2019 showed a sharp drop in international deal volume. Perhaps it may end up as the worst M&A year since 2011. The market is becoming increasingly nervous and dealmakers face increasingly complex governance rules when completing transactions.” 

Several factors have led to the lower deal volume, including a big drop in very large deals and a major fall in the number of deals closed by Chinese dealmakers (72 in 2019 compared to 243 in 2015). Other factors include protectionism, geopolitical uncertainty, continued Brexit ambiguity and an unpredictable financial market.

Lower number of large deals closed in 2019

Interestingly, the researchers found that of all deals closed, only 40% (at the outset) managed to add shareholder value to the buying parties. To come to this insight, they tracked the share price performance of buyers pre- and post-deal, and compared this to an index composed of average stock performance by region.

The analysis shows that acquiring parties in North America and Asia struggle to create value with their deals, and in 2019 they performed respectively 5.6 and 3.2 percentage points lower than their regional indices. Globally, the average in 2019 was 4.8 percentage points below the index. 

“Buyers around the world have now (on average) failed to add value for nine consecutive quarters,” said Langerak. Despite the continued poor performance of UK buyers (-3.7 percentage points), European dealmakers are still doing well across the board: they performed 0.6 percentage points above Europe’s index.

Looking into 2020, the researchers believe that the $100+ million deal segment market will again be impacted by macro-economic challenges. However, as strategic buyers and private equity groups continue to have record high levels of capital, while attractive targets remain scarce, dealmaking activity will remain at a healthy level, but may become more selective. 

“Dealmakers that have a solid M&A strategy and conduct extensive due diligence will be able to thrive,” concluded Langerak.