European merger and acquisition market activity picks up pace

05 October 2016

European merger & acquisition activity picked up in the third quarter of 2016, rising to 47 deals from 35 in the previous quarter, according to Willis Towers Watson’s latest Quarterly Deal Performance Monitor.

Every quarter Willis Towers Watson, a global consulting firm, conduct research – run in partnership with Cass Business School – into the main developments in the merger and acquisition (M&A) market. The analysis shows that Europe enjoyed a significant increase in deal volume, at nearly 50 in the past quarter (the data is based on deals with a value of $100 million or more). In comparison, North America faced a noteworthy drop in volume, with 94 deals completed this quarter vis a vis 118 in Q3 2015. 

The research also looks at the share performance of companies post deal completion, finding that acquirers maintained their run of achieving excellent financial performance in Q3. On average deal-makers returned a market outperformance* of 5.2 percentage points (pp) above index, although a slight drop compared to 5.8pp in the prior quarter.

M&A Volume Q3 2016

Both North America and Europe saw their buyers book above average share-price performance. The return for North American acquirers jumped from 1.5pp in Q2 2016 to 6.2 pp above index in Q3 2016, while deal makers from Europe booked an outperformance of 7.8pp above the regional index, extending a run of six consecutive quarters of outperformance.

Reflecting on the results, Steve Allan, M&A Practice Leader (EMEA) at Willis Towers Watson, says: “Last quarter we posed the question: ‘Has M&A activity just paused or are we on a plateau?’, but with growing European deal volumes and continued share outperformance for acquirers, M&A activity is clearly strong and acquirers continue to deliver value.” Commenting on the contrasting results in North America, he says that the relative drop in the US volume is likely to be caused by the continued uncertainty arising from the US election, with the outperformance in the market suggesting those that are taking the plunge are being rewarded.

The Willis Towers Watson study further finds that quick deals have gained popularity: 45% of deals compared to 36% in Q2 2016, with a notable difference in the speed of completion between the regions. Approximately half of deals in North America (60%) and Europe (47%) complete in less than 70 days between announcement and competition, compared to less than one-in-five (18%) in Asia.

Acquire M&A Performance Q3 2016

Looking ahead, Allan says that 2016 could see the highest number of completed mega deals (transactions worth more than $10 billion) since the index began in 2008, with five deals completed this quarter and 22 deals YTD, matching the full year figure for completed mega deals in 2015. One of those mega deals announced in the past quarter is the merger between AB InBev | SABMiller deal – a transaction which already has been dubbed one of the most lucrative ever for external advisers.

Allan continues: “The continued momentum of mega deals, across a broad geographic base, indicates a continued belief in the capacity of transactions to transform companies and to lead to increased value.”

According to a recent research from BCG, the global M&A market is slightly down on last year, however, the deal fundamentals remain strong

* Share-price performance is measured as a % change in share price from 6 months prior to the announcement date to the end of the quarter.