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WTW calls for long-term view to M&A deals amid COVID-19 uncertainty

9th April 2020 - Author: Luke Gallin

As the global merger and acquisition (M&A) market continues to trend downwards, re/insurance broker Willis Towers Watson (WTW) has called on business leaders to draw on lessons from the 2008 financial crisis and take a long-term view to deals amid widespread uncertainty.

MergerInsurance and reinsurance brokerage firm WTW notes that since a peak in 2015, the performance of the global M&A market has been in decline.

In fact, data from the broker’s Quarterly Deal Performance Monitor (QDPM), run in partnership with Cass Business School, shows that buyers have failed to add value for ten consecutive quarters.

Looking at the first-quarter of 2020, and the data reveals that based on share-price performance, acquirers have underperformed the Global Index by -2.1 percentage points, and -4.9 percentage points over the past year, for deals valued at more than $100 million.

170 deals completed in the quarter, which is down significantly when compared with the previous quarter and is actually the lowest deal volume since early 2014. Within this data, WTW explains that the impact of COVID-19 on Q1’s volumes will most likely be focused on Asian acquirers, as the data only includes deals that completed in the period.

Jane Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, commented: “All deals in this latest report are essentially ‘pre-pandemic’ having been completed, rather than announced, in the first quarter of 2020. So, while our results reveal a continuing downward trend in both M&A deal performance and volume, fear and volatility driven by COVID-19 have since sent financial markets in an accelerated tailspin and significantly disrupted the normal flow of M&A deals.

“The full magnitude, scope and length of the virus’ impact will be largely determined by the success of the world’s response to the outbreak – which is still evolving. What we do know is that lessons learned from previous downturns, such as the 2007-2008 financial crisis, can provide business leaders with a perspective on future recovery and growth.

“We must learn from the past and use this time as a catalyst for new and creative ways of working, which is likely to impact future dealmaking.”

According to WTW, numerous deals are now in limbo as a result of the coronavirus outbreak, but despite this, the broker’s analysis predicts that M&A activity will continue as new opportunities become apparent against a backdrop of reduced share prices and restructuring efforts.

Of course, WTW is itself in the midst of a huge M&A transaction with insurance and reinsurance broker Aon. As previously announced, the deal, which is to be led by Eric Andersen, President of Aon and Julie Gebauer, Head of Human Capital & Benefits at WTW, is expected to close in the first-half of next year.

For business leaders navigating the current crisis, WTW says that while today’s challenge is a different one in numerous ways, there are certain lessons to be learned from the global financial crisis.

These include a focus on people; taking advantage of adversity and turning this into opportunity; a focus on the longer-term; a realisation that M&A deals will take longer to complete and become more unpredictable; and the review of recently implemented plans and synergy goals in light of the current market landscape.

“A long boom in financial markets has caused buyers to complain that so much money has been chasing too few deals, making attractively priced assets hard to find.

“For investors that have been keeping their powder dry, now is the time to look past short-term events and take a view on the long-term value of companies. By looking for value and going through the process of repricing risk and taking selective opportunities, taking the time to review the target’s culture against their own, buyers will find genuine dealmaking opportunities,” said Mercereau.

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