Canadian and Asian Companies are leading the way
Cross-border deals increasing despite challenges
TORONTO, April 19 /CNW/ - Companies that completed deals during the first quarter of 2010 outperformed the market, according to Towers Watson's Quarterly Deal Performance Monitor. The results show that M&A deals are continuing to create rather than destroy value .This quarter's analysis also shows an increase in the percentage of deals that cross borders, despite the relative difficulties associated with such transactions.
In the first quarter of 2010, acquirers around the world outperformed the MSCI World Index (the Index) by 4.3 percentage points, improving on the prior quarter's performance, when dealmakers outperformed the Index by 4 percentage points. Canadian acquirers have done fairly well by outperforming the Index by 11%. Commissioned by global professional services company Towers Watson, and based on an analysis by the UK's Cass Business School, the Deal Performance Monitor is the only study of mergers and acquisitions that tracks performance globally.
This quarter's analysis confirmed yet again the unique challenges associated with cross-border transactions. Companies that completed such deals in the first quarter of 2010 only beat the Index by 1.5 percentage points. Domestic deals completed in the same period, by comparison, surpassed the market by 6.7 percentage points. These results notwithstanding, more companies are choosing to acquire abroad. Thirty-six percent of all deals in the first quarter of 2010 were cross-border, up from 24% from the same quarter in 2009. While the allure of foreign transactions is clearly growing, it's also clear acquirers have not yet worked through the issues involved in bringing two organizations together across borders.
"Our results have consistently shown that Canadian companies brave enough
to complete deals have achieved better shareholder returns than their
deal-avoiding peers. These findings should encourage potential acquirers
to consider deals in the coming months. At the same time, our results
highlight the importance of careful planning, particularly in cases
involving potential targets outside the acquirer's home market," said
Éric D'Amours, who heads the M&A Practice of Towers Watson in Canada.
"Due diligence is clearly more complex, since companies are less familiar
with foreign regulatory environments. But the integration process for
cross-border deals is also more complex, largely due to the added
challenges of operating in an unfamiliar geography and getting the
cultures aligned. An early focus on people integration issues is
therefore critical to the success of the deal."
North America proved to be the most acquisitive region, reflecting both the improving economic picture in the region, as well as a continuing upward trend in positive transaction results. North American acquirers outperformed the regional index by 2.2 percentage points. Cross-border deals made up a growing percentage of the total, with 27% of all deals in the first quarter completed abroad - a 10 percentage point increase from the same period last year. In Canada, acquirers outperformed the North American index by 10.6 percentage points and 33% of all deals were cross-border deals.
In Europe, by contrast, deal performance lagged the rest of the world, with European acquirers underperforming the regional index by 3.5 percentage points. This is largely due to the large number of cross-border deals in Europe - over 60% of all deals during the period - and further underscores the challenges in implementing foreign versus domestic transactions.
In the Asia Pacific region, the picture was dramatically different. Acquirers in the region achieved the best results in the first quarter of 2010, outperforming the regional index by an impressive 12.8 percentage points. This not only reflects the stronger economic situation in the region, but also the fact that a high percentage (70%) of the deals in the region were domestic.
"Prospective buyers have exercised caution over the last 18 months,
playing it safe through an uncertain period of recovery in the global
economy. Now, companies have greater confidence in the credit markets and
are starting to focus on growth again - organic and inorganic," noted
D'Amours. "Another global study by Towers Watson suggests that the
interest of Canadian organizations in making acquisitions in the near
future is high compared to other countries. But as the appetite for deals
grows, the same study shows it is vital they be prepared to address
people and culture issues early, strategically and with discipline, in
order to achieve better results from these transactions."
M&A: the critical list
Regardless of economic climate, Towers Watson recommends three critical steps for dealmakers:
- Be diligent about due diligence: over-confidence and a rising share
price during the bid phase can lead to companies cutting corners,
which can be hugely damaging.
- Focus on integration execution: grab synergies fast, and ensure you
focus on areas of critical value - leadership, communication and
talent retention strategies
- Be prepared: whatever the market conditions, companies should ensure
staff are trained to deal with deals. Being ready will ensure
execution speed and quality.
Towers Watson Quarterly Deal Performance Monitor Methodology
- Focuses on deals completed in the last quarter (01/01/ 2010 -
- Sample data compared on a quarterly and year-to-date basis
- All deals have a value of $100m or above
- All analysis conducted from the perspective of the acquirer
- Share price performance measured as percentage change in share price
from the announcement date to the end of the quarter (Q1 2010)
- Deal data sourced from Thomson One Banker
- Final sample of deals - 148
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the Web at towerswatson.com.
About Cass Business School
Cass Business School delivers innovative, relevant and forward-looking education, training, consultancy and research. For further information, visit: www.cass.city.ac.uk
SOURCE Towers Watson
For further information: For further information: Laura Snell, (416) 355-7406, Laura.Snell@ketchum.com