Drop in North American Deals Could Drag Down Global M&A Activity

The global mergers and acquisitions (M&A) market, with performance in steady decline since its peak in 2015, is forecast to struggle to add value in 2020, according to Willis Towers Watson. Acquirers worldwide underperformed the Global Index by -5.0 percentage points (pp) over the past year for deals valued over $100 million, based on share-price performance, and have now on average failed to add value from deals for 3 consecutive years.

Global dealmaking is also at its slowest pace in 6 years, with 774 transactions over $100 million completed worldwide in 2019, significantly less than 2018 (904) and the lowest annual volume recorded since 2013 (720). Furthermore, 42 percent of these deals were unable to add shareholder value in 2019.

"Last year may have ended with a flurry of deals, but the global picture for mergers and acquisitions was patchy at best," said Duncan Smithson, senior director of M&A at Willis Towers Watson. "As regulatory, political, trade and economic uncertainties persist, the market will likely continue at a slow pace in 2020, with companies in wait-and-see mode, particularly in North America where many transactions are on hold due to trade tensions, a slowing US economy and because presidential election years tend to bring market volatility."

2020 M&A Predictions

Based on short- and long-term global trends revealed by the data, as well as conversations with clients and colleagues, Mr. Smithson shared the following M&A predictions for 2020.

• United States leads M&A slowdown. Completed deals are expected to remain low in 2020, driven by a slowdown in US M&A activity. In particular, the annual volume of large deals (valued over $1 billion) in 2019 was 173—the lowest for years. Market reluctance to take on big deals may also signal companies stepping up preparations for a recession.

• Europe to retain top spot. European dealmakers topped the global M&A rankings in 2019 for a second consecutive year, outperforming their regional index by +1.9 pp, and they expect this positive trend to continue. Meanwhile, deal volume in the United Kingdom last year (31) was at its lowest for a decade, and volume will stay low as long as the risk of a cliff-edge no-deal Brexit remains, keeping business investment at bay for much of 2020.

• China M&A unlikely to improve. Dealmaking momentum in China plummeted from a record high 243 deals in 2015 to just 72 in 2019, as trade uncertainties and recent fears of a global recession took hold. This slowdown, in part due to a sharp decline in outbound Chinese acquisitions, is consistent with a wider trend for fewer M&A deals across Asia Pacific and is expected to continue in 2020. Marginally improved deal performance by Asia Pacific dealmakers in 2019 suggests some improved stability after a turbulent few years.

• Slower times to close expected. With deals completed in 2019 taking an average 141 days to execute compared to 120 days in 2018, the time taken to complete M&A transactions in the year ahead is likely to increase further. Completing cross-border deals, in particular, will likely get harder, slowed down by more rigorous due diligence and the need to prepare for greater regulatory scrutiny.

• Private equity and acqui-hire deals on the rise. Alternative investors such as private equity buyers, armed with record levels of unspent capital, will likely be increasingly active in 2020, completing larger deals and entering more corporate joint ventures. Their pursuit of rapid returns will, however, be challenged by a slowing economy, geopolitical strains, and regulatory demands. We also expect the rising trend of acqui-hire deals (those completed with the precise intent of acquiring talent a buyer could not otherwise hire) to gather pace in 2020.

"Market conditions are increasingly challenging, yet many investors with plenty of dry powder remain cautiously optimistic about the year ahead," said Mr. Smithson. "Where deal volume has gone down, our analysis often reveals performance has on average improved, e.g., in Europe the last two years. This highlights the strengths of a more disciplined market striking thoughtful, strategic deals with greater care and due diligence. Key drivers for pursuing acquisitions in 2020, meanwhile, are likely to remain unchanged, as companies seek access to new markets or respond to tech disruption by acquiring the latest technology or highly skilled workers."