ARLINGTON, VA, July 13, 2022 — Reports of global merger and acquisition (M&A) activity entering a dry spell appear premature with deal makers recording the third-highest number of completed deals in an opening six months since M&A deal research by WTW began in 2008, run in partnership with the M&A Research Centre at Bayes Business School. According to analysis based on WTW’s Quarterly Deal Performance Monitor (QDPM), the only years that have surpassed the 441 deals (valued over $100 million) completed in the first half of 2022 were 2021 — during an exceptional pandemic rebound — and 2015. WTW (NASDAQ: WTW) is a leading global advisory, broking and solutions company.
Although deal activity has slowed from its record-setting 2021 pace, when 484 deals were completed in the first six months, M&A volumes remain buoyant this year with the number of transactions continuing to exceed pre-pandemic levels, according to the QDPM data.
Deal performance, in contrast, has struggled to defy gravity and has clearly been affected by market volatility. Amid soaring inflation, rising interest rates, geopolitical tensions and the ongoing COVID-19 pandemic, buyers underperformed the wider market1 by –4.8 percentage points, based on share price performance, during the first six months of 2022.
The average time to close a deal has also increased in 2022, with 60% of transactions during the first six months taking over 70 days (the long-term average time between announcement and closing), compared with 54% in the first half of 2021. In contrast with last year when competition for assets was fierce and buy-side deal teams had to work with compressed diligence periods to stay competitive in the bid process, market volatility in 2022 has raised the stakes for buyers, advocating caution and increasing 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 Duncan Smithson, senior director, HR Mergers and Acquisitions, WTW.
The number of megadeals (valued over $10 billion) was up to 12 in the first half of 2022 compared with 10 in the same period last year, signaling that companies have not been put off from completing the larger deals planned and announced during the post-pandemic boom, despite the broader market turmoil of the first half of 2022.
All regional acquirers, except those in Asia Pacific, underperformed in the first half of 2022. Asia Pacific acquirers outperformed their regional index, showing an overall performance of +7.2 percentage points with 96 deals closed. Meanwhile, North American acquirers underperformed their index by –6.1 percentage points with 220 deals completed in the first six months of 2022, and deal makers from Europe underperformed their index by –5.9 percentage points with 102 deals in the same period.
Smithson said: “Debt is still relatively cheap by historical standards, and abundant dry powder from private equity firms and SPACs [special purpose acquisition companies] raised during 2021 ensure the appetite for deals remains strong, although clear risks lie ahead. 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.”
WTW’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post-transaction integration, areas that define the success of any transaction.
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1 The M&A research tracks the number of completed deals over $100 million and the share-price performance of the acquiring company against the MSCI World Index, which is used as default, unless stated otherwise.