Return of the mega-merger predicted for 2014

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  • Record performance by acquirers in 2013 lays foundations for increased M&A volumes and values in 2014
  • North America expected to continue dominating M&A activity
  • A European M&A rebound predicted in 2014.

LONDON, Thursday 9th January 2014 – Acquirers in 2013 recorded their best performance in six years, with share prices out-performing non-acquiring companies by an average of 4.5 percentage points (pp). However, despite the traditional end-of-year surge in completed deals in the last two weeks of the year, the total number of completed M&A deals in 2013 was lower, in each region, than total 2012 volumes, according to Towers Watson’s Quarterly Deal Performance Monitor (QDPM) in partnership with Cass Business School.

Strong performances from companies that completed deals, as well as an increase in economic confidence, is likely to be the catalyst for a significant increase in M&A activity in 2014 according to Steve Allan, Towers Watson’s M&A practice lead in EMEA: “In 2012 the end-of-year M&A surge, caused in part by the US fiscal cliff, did not provide any momentum or presage increased M&A activity. This year however, with recovering economies and the growing confidence visible in the markets, we are expecting to see more M&A activity in 2014. In North America, completed deal numbers picked up steadily throughout the year, pointing to growing confidence, and we anticipate that North America will continue to lead the way in M&A in the coming year.”

Towers Watson’s 2014 M&A predictions:

  • Europe to rebound from its poor showing in 2013, but staying in third place. Europe, led by the UK, is likely to experience a small recovery in completed M&A deals in 2014 as economic confidence returns to the markets. Although this is unlikely to be enough to make up ground on the number of deals completed in Asia-Pacific and North America.
  • North America will increase its M&A domination. Deal volumes in North America increased in every quarter of 2013 illustrating the growing confidence of deal-makers. This is likely to continue into 2014 and may set a new record for the number of M&A deals completed in the region.
  • Outbound Chinese deals to increase. This year Chinese companies are likely to break the Asia-Pacific mould of focusing on internal deals and increase the proportion of outbound deals (targeting companies outside the region) as European and North American targets become more tempting.
  • Mega-mergers will see a comeback. The strong performance of last year’s acquirers and the significantly improved economic outlook in many countries is likely to tempt more companies into the realms of a ‘mega-merger’. Completion of large transformational deals worth over $10 billion was notably rare in 2013 but could become popular again as major companies look to expand into new business areas with big brave acquisitions.

Steve Allan said: “2014 looks to be a year of increased optimism and opportunism in M&A but regardless of the number, value or location of deals, it is people-related issues that will continue to provide the distinction between deals that add value and deals that destroy it. Companies that regularly engage in M&A activity already recognise that successful workforce integration is both difficult to get right and crucial to the success of a deal. Less experienced acquirers will need to be alive to these success drivers if they are to take full advantage of the expected more buoyant M&A market this year.”

Fig 1. Global M&A deal performance and deal volumes 2008-2013

Year Share price return adjusted to World Index Return (percentage points) Number of completed Global M&A deals over US$100 million
2013 4.5 720
2012 -0.7 768
2011 2.7 796
2010 4.0 688
2009 3.2 322
2008 2.7 585

 

Towers Watson Quarterly Deal Performance Monitor Methodology in partnership with Cass Business School

  • All analysis conducted from the perspective of the acquirer and is based on standardised analysis.
  • Share price performance is measured as percentage change in share price from six months prior to the announcement date to the end of the quarter in which the deal completed and is compared to MSCI indices.
  • All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered.
  • Deal data sourced from Thomson One Banker.
  • All deals for which Thomson One Banker did not have a share price for the acquirer six month prior to the announcement were removed, as were deals defined as “mergers of equals”, transactions in the real estate sector or acquirers where the share price did not moved over the period of the analysis.

About Human Capital M&A

Towers Watson’s Human Capital M&A Practice advises clients around 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.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management.  Towers Watson has more than 14,000 associates around the world.

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