All-time high for deal volumes combined with record returns for acquirers. Year-end results from Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM) show that acquirers closing deals in 2015 outperformed their index* by 10.1%age points (pp) during the year.

In addition, completed M&A deals that met the study criteria reached an all-time high of 1,041 as a record number (307) were posted in Q4, more than in any single quarter since the research began in 2008. The research – run in partnership with Cass Business School – shows the number of completed mega-deals (over $10 billion) reached 22 for the year (with five completing in Q4) the highest annual total since the research began.

Steve Allan, M&A Practice Leader (EMEA) at Willis Towers Watson, said: “2015 was a standout year. We have not only seen an outstanding number of the very largest deals completing but the M&A market has also shown strength in depth with numbers passing the 1,000 deals-in-a-year mark for the first time. Not only was 2015 marked by high activity, but acquirers continued to realise value with the study now registering 12 consecutive quarters of outperformance for completed deals and 2015 showing record returns.”According to the research, in 2015 the outperformance of cross-sector deals (23.8pp above the index*) was more than double that of the previous year (10.1pp). The outperformance of cross-border and intra-regional deals also increased substantially in 2015 with 6.0pp and 6.2pp respectively compared against 2014 figures of 3.3pp and 3.4pp.

Steve Allan said: “The outperformance we are seeing from cross-sector deals is phenomenal. A deeper look shows that acquirers from across all business sectors are seeking to grow through these transformational transactions, and are being rewarded by the market for doing so. The significant outperformance of these dealmakers is a sign of investor confidence in acquirers’ ability to integrate diverse business models and realise longer-term growth.”The research also highlights that acquirers in all sectors outperformed their indices3 in 2015, with Materials (25pp), Industrials (18pp), High technology (14pp) and Healthcare (9pp) well above their respective 2014 performances of 6pp, 8pp, 9pp and 7pp. From a regional perspective North America continues to lead the table on volume of deals completed in 2015 with 488, followed by Asia-Pacific with 342 and Europe with 180 (with 31 completed deals for the rest of the world).

Steve Allan said: “2015 has been a stellar year for M&A and, although we are at an all-time high, there is still significant value to be gained from M&A. Asia well and truly joined the M&A party last year while closing the gap on the North America M&A deal power house. Perhaps surprisingly, given the economic climate, those undertaking deals in Europe also managed to achieve significant financial returns for acquirers.”

2016 M&A predictions:
1. Global economic volatility and politics will be a key factor
A dominating theme driving M&A activity will be political and economic instability.  A number of events could combine to have global significance such as further US interest rate rises, the US election, a potential Brexit, European political uncertainty and Chinese market volatility among others. Any combination of these events could create winds of change, but whether they promote or depress activity will depend on if and how they coincide.

2. Mega-deals will continue but may mask a gradual slowdown in activity
Pharmaceutical company M&A activity should continue unabated and could continue to drive mega-deal activity. While deal volume in monetary terms will remain high during the year, it will be interesting to see if a drop in the number of smaller deals emerges as a leading indicator that we are reaching the peak of the M&A cycle.

3. Cross-sector deals will continue to grow
Cross-sector and “transformational” deals have long been regarded as harder to complete and harder to realise value from, given the complications of integrating diverse business models and organisational cultures.  2015 saw a record number of these deals, both in number and as a proportion of all deals. We can anticipate this continuing in 2016.

4. Weak commodity prices to continue to create opportunities in the extractive and oil & gas sectors
As commodity prices remain weak, the extraction and oil & gas sectors will be looking to rationalise and to create new income streams. Despite the turmoil in these sectors during 2015 successful acquirers outperformed their industry indices, and we expect to see more intra-sector deals in these areas as stronger players look to make the most of the opportunities that present themselves.

Steve Allan said: “2016 is going to be another exciting year for M&A, with plenty of opportunities. However a word of warning to those who enter the fray. While the rewards can be significant, it’s important to remember that these pay out over the long term and that the key to realising them is careful planning and integration execution. The strong outperformance of acquirers highlighted in our study is a sign that investors believe that dealmakers can successfully implement transactions. However as deals become larger and increasingly cross-sector and global the implementation challenge that is the true driver of deal success will become ever harder.”

Acquirer outperformance compared to index* by deal type in %age points 

Acquirer outperformance compared to index** by sector in %age points

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 %age 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 were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered. Only completed M&A deals with a value of at least $100 million are included in this research.

Deal data sourced from Thomson Reuters.