International dealmakers attain first constructive M&A efficiency since 2016 – WTW
Based on the development of the share price, companies that enter into M&A deals outperformed the world index by an average of +1.4 percentage points (percentage points).
In APAC, the dealmakers posted their strongest full-year performance since 2016, outperforming the index by +16.8 percentage points, although they closed only slightly more deals compared to 2020 (196 versus 173) as fewer Chinese acquisitions continued to squeeze volume.
European buyers outperformed their regional index and posted positive performance of +3.9 percentage points and 199 closed deals in 2021, a quarter more than 155 deals in the last 12 months. Meanwhile, UK buyers have consistently outperformed the FTSE All-Share Index for the past five years, posting positive returns of +5.7 pp for the year.
Jana Mercereau, Head of Corporate M&A Consulting for the UK at WTW, said the company expects the M&A boom to continue into 2021 this year, thanks to plentiful investment capital, strong stock markets and cheap debt, and companies making their businesses greener want to hunt for destinations with the right climate information.
“North American M&A data also illustrates the impact historically high asset valuations, driven by competition and increasing complexity, can have on transaction performance,” added Mercereau. “The question is whether the prices that are being paid now also make sense in the long term.”
The report identified possible M&A trends for 2022:
- Environmental, Social, and Governance (ESG) goals will fuel the M&A boom after being high on the CEO’s agenda recently.
- Digital transformation will accelerate as the COVID-19 pandemic increases the speed and scale of this change.
- Companies will focus on supply chain-driven M&A to make their products and services more self-sufficient due to the immense stress that the pandemic, social unrest, cyberattacks and extreme weather events are placing on global supply chains.
- M&A cycles will change due to the increasing trend towards building professional in-house corporate development teams.
- Most dealmakers will aim to hit or hit their grand total for 2021. However, you could consider the impact of inflationary pressures and ESG issues on transaction performance.
“M&A activity in 2022 is likely to hit 2015 highs, although transactions will remain vulnerable to increasing challenges,” said Mercereau. “High valuations, transaction complexity, competition for high value assets and supply chain disruptions caused by a pandemic will continue to have repercussions for dealmakers. Deal speed, preparation and quality due diligence are essential if the dealmaker’s expectations are to be met. ”