How is economic instability affecting M&A dealmakers? – WTW report | Insurance Business Australia
The global mergers and acquisitions market remains buoyant despite economic instability, with dealmakers recording the third-highest number of completed deals in an opening six months since deal research by WTW began in 2008.
According to data from WTW’s Quarterly Deal Performance Monitor (QDPM), the only years that have surpassed the 441 deals completed in the first half of 2022 – valued at over $100 million – were 2021 (during an exceptional pandemic rebound) and 2015.
While deal activity has slowed from its record-breaking pace in 2021, when 484 deals were completed in the first six months, M&A volumes remained strong this year, with the number of transactions continuing to surpass pre-COVID levels, according to the QDPM, which is run in partnership with the M&A Research Centre at Bayes Business School.
However, deal performance has been impacted by market volatility, WTW reported. Amid spiking inflation and interest rates, geopolitical tension and the ongoing COVID-19 pandemic, buyers underperformed the wider market by -4.8 percentage points, based on share price performance, during the first half of 2022.
The average time to close a deal also increased, with 60% of transactions during the first half taking more than 70 days, compared to only 54% in H1 2021. Unlike last year, when fierce competition meant buy-side deal teams had to work with compressed diligence periods in order to stay competitive in the bid process, market volatility this year has pushed buyers in the direction of caution and increased due diligence.
“While there has been a slowdown this year following the record-setting pace of 2021 – thanks in part to booming markets and widespread stimulus measures during the pandemic – the pipeline remains very healthy, even with deal execution becoming harder due to increased volatility and macro concerns,” said Jana Mercereau (pictured above), head of corporate M&A consulting, Great Britain at WTW.
The number of megadeals – those valued at more than $10 billion – was up to 12 in the first half of 2022, compared to 10 in the same period last year, indicating that companies have not been discouraged from completing the larger deals planned and announced during the post-pandemic boom, WTW reported.
All regional acquirers except those in Asia-Pacific underperformed in the first half. Asia-Pacific acquirers outperformed their regional index, posting an overall performance of +7.2 percentage points with 96 deals closed. North American acquirers underperformed their index by -6.1 percentage points with 220 deals completed. Dealmakers in Europe underperformed their index by -5.9 percentage points with 102 deals closed.
“Debt is still relatively cheap by historical standards, and abundant dry powder from private equity firms and SPACs raised during 2021 ensure the appetite for deals remains strong, although clear risks lie ahead,” Mercereau said. “Geopolitical uncertainty, rising interest rates and supply chain disruptions create a volatile mix that will make deals more complex, take longer and require a new focus from buyers on how to improve the odds of success.
“At a time when change fatigue is at an all-time high, with the pandemic in its third year, clear and consistent communication to employees and the market will prove more critical than ever to preventing greater disruption and confusion, and ensuring deals get over the finish line, create value and drive long-term growth.”