The Global M&A market continues to struggle to add value and buyer performance has been in steady decline since a 2015 peak, according to long-term data compiled by Willis Towers Watson and Cass Business School. After 2018 saw deal makers underperform in terms of shareholder value for an unprecedented fifth consecutive quarter, and record their worst annual performance for a decade, what can potential acquirers expect in 2019?
M&A predictions for 2019
Based on short and long-term trends revealed by the data, as well as conversations with clients and colleagues, Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain at Willis Towers Watson, has shared five M&A predictions for 2019:
Things can only get better in 2019 - 2018 was a tough year for deal makers, who recorded their worst annual performance since the financial crash in 2008. Although complex headwinds remain, we are optimistic that the market will bottom out in 2019 and, supported by more clarity over the direction of the US administration and Brexit, improve the position of buyers in achieving better value from their deals.
Fall in foreign deals - We expect to see a global decline in the number of cross-border deals due to regulatory constraints fueled by an increasing trend towards protectionism. This will lead to a more defensive strategy of domestic consolidation, for which some nations will be better equipped. The US domestic M&A market, for example, has traditionally shown itself to be very robust, so we expect volumes to remain stable as acquirers focus their firepower on domestic targets.
No uptick expected in APAC - As well as a significant drop in deal volume, Asia-Pacific acquirers recorded the worst annual performance of all regions in 2018, with the underperformance of 17.1pp (percentage points) below the regional MSCI Index. We expect M&A activity from Chinese companies to be muted in 2019, impacting volumes across the Asia-Pacific region.
Outside interest in the UK remains strong - While ongoing uncertainty around Brexit is likely to translate into less M&A activity for UK companies in 2019, the positive results enjoyed by non-UK acquirers when buying in the UK will see Britain remain one of the most popular M&A target nations.
Mega deals continue to struggle - There were 17 mega deals in 2018 (those valued at over $10bn), which underperformed the market by 14.5pp, the worst performance of all deal types. Global political uncertainty, from trade wars and growing protectionism to Brexit, will continue in 2019 and negatively impact mega deals in particular, as buyers will be cautious of transactions that take a long time to complete in a volatile dealmaking environment.
Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: “The ability to deliver anticipated benefits in terms of shareholder value for the buyer is at a ten-year low. On top of this, the market stress that characterized 2018 will persist, with rising regulatory uncertainty, ongoing trade and tariff negotiations, including Brexit talks and the US-China trade disputes, making it even more challenging to deliver deals successfully.
“Technology disruption, changing consumer behavior, the slowdown in the growth of emerging markets and record cash reserves will drive companies to get into the M&A market. With many targets looking more expensive than they were during previous M&A peaks, such as in 1999 during the dot-com boom and in 2008 before the global financial crash, there has never been a more important time for decision-makers to focus on target selection, diligence and execution before jumping into a deal if they are to give themselves the best chance of success.”