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Despite Q4 rebound, 2020 M&A activity fell to lowest level since GFC: WTW

12th January 2021 - Author: Luke Gallin

In spite of a rebound in the final quarter of the year, re/insurance broker Willis Towers Watson (WTW) reports that in 2020, global mergers and acquisitions (M&A) activity declined to its lowest level since the aftermath of the global financial crisis (GFC).

MergerThe latest research on completed M&A deals from the insurance and reinsurance broker’s Quarterly Deal Performance Monitor (QDPM), which is run in partnership with the M&A Research Centre at The Business School (formerly Cass), shows that globally, firms completed just 674 deals valued at more than $100 million 2020.

As highlighted by WTW, this is someway below the 774 deals recorded in 2019 and, is actually the lowest annual volume since 2009, when worldwide, 332 deals completed valued at over $100 million.

Usurpingly, the arrival of the global COVID-19 pandemic early in the year halted M&A activity for much of 2020 amid widespread financial market volatility and uncertainty.

However, the resurgence of the marketplace in Q4 2020 added some positivity to a challenged sector. According to WTW, QDPM data shows a notable rise in volume in the fourth-quarter with 246 deals completed globally. This compares to just 210 deals completing in the final quarter fo 2019. Furthermore, the quarter experienced the highest ever number of large deals completed in a Q4, at 61.

The broker attributes this resurgence to a strong uptick in activity by North American buyers, matched by the region’s first positive quarterly performance in three years.

But despite the positive performance in North America and the continued, resilient form of European buyers, volatile conditions in the Asia Pacific region means that, on average, acquirers worldwide have now failed to add value from M&A transactions for four years running, based on share-price performance.

In 2020, the acquirers underperformed the global index by 1.9 percentage points; which followed a -5pp performance in 2019; -3pp performance in 2018; and a -1.3pp performance in 2017.

Jana Mercereau, Head of Corporate M&A Consulting, Great Britain, WTW, commented: “The year 2020 has been unlike anything we’ve ever seen, fuelled by an enduring pandemic, massive economic uncertainty, a highly divisive US presidential election and rising geopolitical tensions. While the world in 2021 remains a volatile place, pent up demand, ample funding, ultra-low interest rates and confidence returning to boardrooms indicate conditions are ripe for one of the biggest M&A years on record.”

While the economic outlook remains uncertain, WTW feels that conditions are primed for a surge in dealmaking in 2021.

According to Mercereau, trends to look out for in the year ahead across the global M&A market include; an increasingly bipolar world amid a geopolitical and macroeconomic environment that is dominated by tensions between China and the U.S.; a race against time in terms of the ongoing COVID-19 pandemic; a change in the criteria for dealmaking in light of advanced technology adoption; the rise of Special Purpose Acquisition Companies (SPAC); and also uncertainty around how financial services will be affected by Brexit.

“The pandemic demonstrated a need for companies to double-down on efforts to adopt innovation into existing business models and focus on a digital approach to build new routes to market. Following a rollercoaster year for M&A, firms will continue to look to build resilience to withstand future shocks or crises, with an increasing number of transactions across all sectors focused on diversification and capturing long sought-after capabilities.

“That said, dealmakers should not assume a corner has been turned, with uncertainty set to remain. It will be as critical as ever for acquirers to pick their targets carefully for growth, before jumping into a deal if they are to give themselves the best chance of success. A dedicated focus on HR and people-related risks during due diligence and integration can help achieve this,” said Mercereau.

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