Global M&A to remain strong in 2022 as valuations reach historic highs, putting pressure on deals to achieve meaningful value

ARLINGTON, VA, January 5, 2022 — In 2021, global deal makers achieved their first positive M&A performance for a full year since 2016, according to latest research on completed deals from Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM). Based on share price performance, companies making M&A deals outperformed the World Index¹ by +1.4 percentage points on average.

Run in partnership with the M&A Research Center at The Bayes Business School (formerly Cass), the data also reveal that global activity achieved new highs as completed deals valued over $100 million reached 1,047 in 2021. This represents a significant increase over the previous year (674) and is the highest annual volume since Willis Towers Watson’s analysis began in 2008.

Deal volume in North America remained consistently strong during 2021, with acquirers closing 614 deals, almost double the 325 deals achieved in the previous 12 months, although they only outperformed their regional index by the narrowest of margins (+0.5 percentage points).

For the full year, Asia Pacific deal makers recorded their strongest performance since 2016, outperforming their index by +16.8 percentage points, despite closing only fractionally more deals regionally compared with 2020 (196 versus 173), as fewer Chinese acquisitions continued to depress volume levels. European acquirers outperformed their regional index, showing a positive performance of +3.9 percentage points and 199 deals closed in 2021, up a quarter on 155 deals in the prior 12 months. UK acquirers have consistently outperformed the FTSE All-Share index over the past five years, recording a positive performance of +5.7 percentage points for the year.

“The M&A boom in 2021 looks set to continue, fueled by abundant investment capital, strong equity markets and cheap debt, and companies under pressure to make their businesses greener by hunting for targets with the right climate credentials,” said Duncan Smithson, senior director, HR Mergers & Acquistions, North America, Willis Towers Watson. “M&A data from North America also highlights the impact that historically high asset valuations, pushed up by competition and increasing complexity, can have on deal performance. The question is whether prices being paid now will continue to make sense over time.”

Global M&A deals – Annual performance

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5 M&A trends for 2022

Willis Towers Watson shares top M&A trends for the year ahead:

1. 01

   ESG goals drive M&A boom

   Environmental, social and governance (ESG) priorities are climbing to the top of CEO agendas, with greater emphasis to drive employee engagement in a hybrid world of work and purchasing, rationalizing or divesting assets to improve their environmental footprint. Themes such as decarbonization will drive deals, with additional opportunities for new ventures stemming from climate risk mitigation innovation.

2. 02

   Digital transformation accelerates

   Businesses have been focusing on the digital transformation of their operations for a number of years, with the pandemic increasing the speed and scale of change.

   The so-called Great Resignation, which has forced companies to re-evaluate how to retain and acquire new talent in a scarce labor market, will continue to be a factor with companies under pressure to acquire high-end talent in fields such as cyber security and software engineering. Our M&A data reveal that 293 large and mega deals (those valued at over $1 billion) were completed in 2021, the highest number recorded as companies shaped their post-COVID-19 future through transformative acquisitions. This may well be surpassed in 2022 as companies and investors flush with cash continue to look for acquisitions in areas where they need to grow or add capabilities.

3. 03

   Supply chain drives M&A

   Many companies will aim to achieve more self-sufficiency in their products and services due to the immense strain exerted on global supply chains by the pandemic, social unrest, cyber attacks and extreme weather events. They will achieve this through either reshoring, nearshoring or M&A by vertically integrating upstream links to improve certainty of delivery.

4. 04

   M&A cycles are changing

   Instead of declining in line with economic downturns, the unprecedented amount and mix of capital for deals from private equity firms and other investors indicates an increased capability and desire to do deals through downturns. The rising trend to build professional in-house corporate development teams, allowing firms to identify and act on opportunities more nimbly themselves, will further enhance acquirers’ capacity to undertake M&A deals even during high volatility.

5. 05

   M&A activity is strong — but with caveats

   Most deal makers will be aiming this year to match or exceed their 2021 deal total, but they will also be concerned that inflation pressures and ESG issues could have a negative impact on deal performance.

   Besides the ongoing pandemic, supply chain disruptions and talent shortages, government regulation is likely to intensify, with a focus on the technology sector. Companies will also continue to face geopolitical tensions. China looks unlikely to remain the powerhouse of international, cross-border deals, which may serve to stimulate activity in other places such as Japan, India and Southeast Asia. This trend is already evident in our data, which reveal cross border M&A activity during 2021 has remained at a steady level despite depressed deal activity from China.

“M&A activity in 2022 looks poised to match the peaks of 2015, although deals will remain susceptible to increasing challenges. High valuations, deal complexity, competition for high-quality assets and pandemic-fueled supply chain disruption will continue to have knock-on consequences for deal makers. Deal speed, preparation and quality due diligence will be essential if deal makers’ expectations are to be met,” said Smithson.

Willis Towers Watson QDPM methodology

• All analysis is conducted from the perspective of the acquirer.
• Share price performance within the quarterly study is measured as a percentage change in share price from six months prior to the announcement date to the end of the quarter.
• All deals where the acquirer owned less than 50% of the shares of the target after the acquisition are removed; hence, no minority purchases are considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition are removed; hence, no remaining purchases are considered.
• Only completed M&A deals with a value of at least $100 million that meet the study criteria are included in this research.
• Deal data are sourced from Refinitiv.

About Willis Towers Watson M&A

Willis Towers Watson’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.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.

Footnote

¹ The M&A research tracks the number of completed deals over $100 million and the share price performance of the acquiring company against the MSCI World Index, which is used as default, unless stated otherwise.