LONDON, January 11, 2023 — Global dealmakers achieved a second consecutive quarter of market outperformance in the last three months of 2022, according to research on completed deals from WTW’s Quarterly Deal Performance Monitor (QDPM). Based on share price performance, companies making M&A deals outclassed the wider market1 by +5.2pp (percentage points) for acquisitions valued over $100 million between October and December 2022. This follows a positive performance of +3.9pp in the previous quarter.
Run in partnership with the M&A Research Centre at Bayes Business School, the full year figures for 2022 still reveal a slight underperformance by buyers of -0.8pp compared to non-acquirers, despite the upturn in acquirer performance in the second half of the year. This is in contrast to a positive full year performance of +1.4pp in 2021. Deal volume in 2022 was also significantly down by 19% with 853 deals completed globally, compared to 1047 deals in 2021, driven by a marked slowdown in M&A activity in North America.
Jana Mercereau, Head of Corporate M&A Consulting, Great Britain at WTW, said: “While geopolitical tensions, inflation and rising interest rates had an inevitable impact last year on deal activity and performance, the extraordinary pace set in 2021 was also unsustainable. Rather than being interpreted as a downward trend, current M&A volumes reflect a return to healthy pre-pandemic levels.
“Macroeconomic uncertainty will persist in 2023, yet deals will still get done. Despite the bar being raised on difficulty, the positive M&A performance sustained over the last two quarters clearly indicates the ability of strategic buyers to succeed in challenging environments. By looking at target companies with an even finer lens, investing more time and resources to ensure quality due diligence, dealmakers will be well-placed to generate value and drive longer-term growth from deals.”
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Annual Performance (pp)* | -0.7 | +4.5 | +5.5 | +10.1 | +5.4 | -1.3 | -3.0 | -5.0 | -1.9 | +1.4 | -0.8 |
*The figures in the table show the annual median-adjusted performance of all acquirers.
North America led the slowdown in activity, with acquirers closing 402 deals in 2022, 35% fewer compared to the 614 deals completed in 2021. In contrast, deal volumes have been more stable in Europe and Asia Pacific, with both regions seeing a marginal increase in M&A activity during the last 12 months. European acquirers completed 203 deals in 2022 compared to 199 in 2021, while 200 deals were completed by Asia Pacific dealmakers in 2022 compared to 196 the previous year.
While Asia Pacific buyers outperformed their regional index by +10.1pp for 2022, the full year figures show an annual underperformance across other regions, with North American and European buyers underperforming their industry peers by -1.9pp and -5.7pp respectively.
In contrast to the full year results, the final three months of 2022 showed a stronger global performance not only by Asia Pacific dealmakers (+10.5pp) but also in North America where acquirers also strongly outperformed their regional index (+9.4pp). Only dealmakers from Europe continued to underperform their index by -2.6pp during the final quarter of 2022.
Jana Mercereau shares her top trends for the year ahead:
01
Buyers to increasingly focus on smaller deals, as recessionary fears trigger a ‘lipstick effect’: when economic downturns lead to a rise in spending on smaller, more affordable – rather than big ticket, more expensive – goods. For the first time in over three years no mega deals (valued over $10 billion) were closed during Q3 2022, and large deals (valued over $1 billion) were significantly down compared to the same period in 2021 (49 vs 67), according to WTW’s Quarterly Deal Performance Monitor, run in partnership with the M&A Research Centre at Bayes Business School.
02
The difficult operating environment will drive an increase in companies jettisoning non-core assets in the pursuit of long-term value creation. Some deals will be strategic - energy firms continuing to divest carbon intensive assets – while the ongoing economic uncertainty will force other companies to sell assets - the retail and leisure sectors often having a higher operating leverage. This can create opportunities for buyers to expand product lines, services or supply chains at a reduced rate.
03
The need for speed in digital transformation across industries, accelerated by volatility, will keep dealmaking front and centre, with a wave of acquisitions in the AI and machine learning markets expected in 2023. Whether adopting new technologies and talent, or reaching new markets, M&A continues to be the fastest way for businesses to transform in order to remain relevant and resilient in today’s fast-changing world.
04
Hit by multiple supply chain disruptions during the pandemic that are set to stay in 2023, companies will look to M&A transactions to boost their operational resilience. Vulnerabilities that continue to deliver distressed deal flow in the worst-affected sectors will also be a catalyst for businesses to reinvent their own supply chain networks. By onshoring or nearshoring suppliers closer to the point of production, businesses will aim to achieve greater security and resilience.
Cross-border M&A activity has decreased in 2022, reflecting economic and geopolitical upheaval on the world stage. The pursuit of stability and predictability is likely to lead to more deals among trusted partners, signalling a shift to more selective ‘friend-shoring’ transactions in 2023.
05
ESG issues in dealmaking will remain in the spotlight in 2023, especially as acquirer due diligence will be more important than ever. With increasing numbers of investors seeing ESG as a fundamental driver of financial success, businesses will face mounting scrutiny and pressure for transparency on climate risk, social justice, sustainability and corporate governance. ‘Green’ due diligence is, without a doubt, on the up.
WTW’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction.
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1 The M&A research tracks the number of completed deals over $100m and the share price performance of the acquiring company against the MSCI World Index, which is used as default, unless stated otherwise.
