Global slowdown in M&A to continue in 2020

13 January 2020 3 min. read

With a number of macro-economic challenges still putting investors off splurging on M&A in 2020, the slump on global deal performance is likely to continue well into the new decade. However, according to a new study, there will still be opportunities for strategic investors to make their mark.

The global merger and acquisition (M&A) market has seen its performance slope into a steady decline since peaking in 2015. Since then, geo-political uncertainty and economic stagnation have both contributed to a growing sense of caution among businesses, while the heightened premium charged by sellers in the present market has undoubtedly ramped up the risk associated with those buyers who are willing to take the plunge.

According to a new report from Willis Towers Watson in collaboration with Cass Business School, this trend is set to continue well into the new decade. With Brexit still unresolved, the threat of trade wars between the US and China and an economic crisis seemingly on the cards in the near future, M&A activity is expected to struggle to add value to global business in 2020, following an anxious year which closed out with acquirers worldwide seeing their performance dip by 5% in Willis Towers Watson’s Global Index.

Global slowdown in M&A to continue in 2020

The 774 major deals factored into the research over the course of 2019 were ultimately valued at just over $100 million, based on share-price performance. This represented a significant fall on 2018’s 904 deals – which themselves constituted an average 3% fall on share-performance. On average, firms committed to M&A campaigns have now failed to add value from deals for three consecutive years, while performance is now its worst since before the 2008 recession.

The nature of 2019’s second half performance will be a particular cause for concern with regards to M&A performance. The third quarter saw global M&A performance hit its lowest in more than a decade, while performance continued to languish at -5% in the fourth quarter. It would be tempting for more optimistic economists to paint this as a ‘rally’ in the market, but Willis Towers Watson cautioned against this.

Jana Mercereau, Willis Towers Watson’s Head of Corporate Mergers and Acquisitions for Great Britain, said, “Last year may have ended with a flurry of deals, yet the global picture for mergers and acquisitions in 2019 was patchy at best. As regulatory, trade and economic uncertainties persist, the market is likely to continue at a slow pace in 2020, with companies in wait-and-see mode, particularly in North America where many transactions are on hold due to trade tensions, a slowing US economy and because presidential election years historically bring market volatility.”

Looking forward, the researchers believe that the $100+ million deal segment market will continue to be impacted by macro-economic challenges throughout 2020. However, while attractive targets will likely remain scarce, the analysts did also note that as strategic buyers and private equity groups continue to access record high levels of capital, deal-making activity will remain at a healthy – albeit more selective and expensive – level.

Mercereau added, “Many investors with plenty of dry powder remain cautiously optimistic about the year ahead. Where deal volume has gone down, our analysis often reveals performance has on average improved, as seen in Europe for the last two years. This highlights the strengths of a more disciplined market striking well thought-out strategic deals with greater care and due diligence. Key drivers for pursuing acquisitions in 2020, meanwhile, are likely to remain unchanged from last year, as companies seek access to new markets or respond to tech disruption by acquiring the latest technology or highly skilled workers.”