Global M&A slowdown to continue in 2020

The global M&A market, with performance in steady decline since its peak in 2015, is forecast to continue to struggle to add value for listed companies making acquisitions in 2020, based on the analysis by Willis Towers Watson and Cass Business School. 

According to the data, the listed companies making acquisitions worldwide underperformed the Global Index by -5.0pp (percentage points) over the past year for deals valued over $100 million, based on share-price performance, and have now on average failed to add value from deals for three consecutive years. These exclude private equity buyers and non-listed acquirers.

Global dealmaking by listed companies is also at its slowest pace in six years, with 774 transactions completed over $100 million worldwide in 2019, significantly down compared to 2018 (904) and the lowest annual volume recorded since 2013 (720). Forty-two per cent of these deals were unable to add shareholder value in 2019.

Massimo Borghello, Head of Corporate Mergers and Acquisitions, Human Capital and Benefits, for Asia Pacific, said: “Last year, the global picture for M&As by listed acquirers was patchy at best. As regulatory, trade and economic uncertainties persist, the market is likely to continue at a slow pace in 2020, particularly as we do not expect a major pick-up in China M&A volumes in the near term. However, pockets of opportunities will remain, with Japanese corporate outbound M&A ambitions likely to remain a priority in face of sluggish organic growth. We are also expecting dealmakers to increasingly recognise Southeast Asia’s long-term potential as we move into the second half of 2020.”.

Terence Montgomery, Head of Mergers and Acquisitions, Transactional Risks, for Asia Pacific, added, “Listed acquirers aside, regional and global M&A volume is also highly driven by private equity and non-listed acquirers whom we regularly see achieving strong performance. Market conditions have become more challenging for certain sectors and geographies, yet significant amounts of available funds exist and many investors remain cautiously optimistic about the year ahead. We see increased interest by dealmakers in larger deal sizes and take privates, and wider exploration of new sectors and geographies (including outbound Asia). Deals will be done, but perhaps at slower timetables other than for the most highly sought-after targets.”

Based on short and long-term trends revealed by the data, as well as conversations with clients and colleagues, Willis Towers Watson’s global M&A predictions for 2020 are:

• US leads M&A slowdown

Completed deals are expected to remain low in 2020, driven by a slowdown in US M&A activity. In particular, the annual volume of large deals (valued over $1 billion) by listed acquirers in 2019 was 173 - the lowest for five years. Market reluctance to take on big deals may also signal listed companies stepping up preparations for a recession.

• Asia Pacific performance to stablize but China M&A unlikely to improve

Asia Pacific deals by listed acquirers saw some improved performance in 2019, suggesting some improved stability after a turbulent few years. In terms of volume, deal making momentum in China by listed acquirers plummeted from a record high of 243 deals in 2015 to just 72 in 2019, as trade uncertainties and more recent fears of a global recession took hold. This slowdown, partly due to a sharp decline in outbound Chinese acquisitions, is consistent with a wider trend for fewer M&A deals by listed acquirers across the Asia Pacific region and is expected to continue in 2020.

• Europe performance to continue

European deals by listed acquirers in 2019  outperformed the regional index by +1.9pp, and we expect this positive trend to continue. Meanwhile, deal volume by listed acquirers in the UK last year (31) was at its lowest for a decade, and volume is expected to stay low as long as the risk of a cliff-edge no-deal Brexit remains, keeping listed acquirer investment at bay for much of 2020.

• Slower close times expected

With deals completed in 2019 taking on average 141 days to execute compared to 120 days in 2018, the time taken to complete M&A transactions in the year ahead is unlikely to decrease particularly for cross border deals subject to regulatory scrunity.

• Private equity and acqui-hire deals on the rise

Private equity and non-listed buyers, armed with record levels of unspent capital, are expected to be increasingly active in 2020, completing more deals and entering into larger deal sizes, new sectors, more geographies and more corporate joint ventures. Their pursuit of rapid returns will however be challenged by a slowing economy, geopolitical strains and regulatory demands. We also expect the rising trend of acqui-hire deals (those completed with the express intent of acquiring talent a buyer could not otherwise hire) to continue to gather pace in 2020.