Global M&A performance bounced back in the third quarter of this year, said WTW recently when releasing its research on completed deals from the Quarterly Deal Performance Monitor (QDPM).
Based on share price performance, buyers outclassed the wider market by +3.9 percentage points for deals valued over $100 million between July and September 2022, the company pointed out.
Run in partnership with the M&A Research Centre at Bayes Business School, the data also reveal the extent to which risk sentiment has cooled, WTW noted.
- Global deal activity is significantly down, with 210 deals completed in the third quarter of 2022 compared with 264 in the same quarter of 2021.
- However, this indicates a return of global M&A performance to healthy pre-pandemic levels after the record-setting pace of 2021 driven by exceptional conditions.
- For the first time since the second quarter of 2019, no mega deals (valued over $10 billion) were closed in the past quarter.
- Large deals (valued over $1 billion) were also significantly down compared with the same period in 2021 (49 versus 67).
- This decline in larger deal activity suggests acquirers are growing more cautious by avoiding the risks that come with more complex deals as well as spending more time on their due diligence processes in response to increasing regulatory scrutiny in several key markets.
- Despite the perfect storm of challenges facing the market — rising interest rates, higher inflation, geopolitical tensions and a looming recession — that has clearly weighed on deal maker sentiment, M&A is showing significant resilience.
“M&A activity is likely to continue with a more cautious tone as we head toward the end of the year,” said Duncan Smithson, senior director, Mergers and Acquisitions, WTW.
“The flight to quality reinforces the need for companies to set their sights on assets with a clear, well-articulated strategic rationale. Assets perceived as being ‘just okay’ are unlikely to transact in this lower-risk environment.”
Asia Pacific acquirers outperformed by +14.4 percentage points, with 49 deals closed in the third quarter of 2022, WTW said.
North American acquirers also outperformed their index by +4.5 percentage points, with 98 deals closed between July and September, according to the research.
Overall, only European acquirers underperformed their regional index, according to WTW.
Dealmakers from Europe, who have been most disrupted by geopolitical and global financial uncertainty, underperformed their index by –6.7 percentage points, with 51 deals completed, the firm added.
Even though financial conditions have tightened sharply through the first nine months of 2022, plenty of dry powder is still available, with some investors seeing current conditions as a buying opportunity and private equity firms needing to deploy large amounts of cash by year-end,” said Smithson.
“We expect competition for much-needed technology, ESG priorities, supply chain resilience and recession-proof industry deals to drive dealmaking and global M&A performance into 2023 as companies navigate current market uncertanties and plan for long-term growth,” he noted.