Asia opens up widest margin over Europe for M&A deals
In 2012 Asia-Pacific acquirers completed over 40 per cent more M&A deals than their European counterparts, according to Towers Watson’s Quarterly Deal Performance Monitor (QDPM), the largest margin since the research began in 2008. Companies in the region completed more M&A deals than Europe in a calendar year first in 2009, by a margin of 25 per cent. The research, run in partnership with Cass Business School, shows that Asia-Pacific dealmakers completed 183 deals in 2012 compared to 128 by their European counterparts, and similarly, completed more deals in every quarter of the year. The year-end figures, which contains data on all deals over $100 million completed in the year, show North American companies accounted for 422 deals, well over half of those completed worldwide this year. In terms of performance, Asia-Pacific companies that completed M&A deals performed in line with their MSCI index over the year. Despite an increase in activity by North American acquirers relative to their peers, year-to-date figures show post-deal performance of 1.3 pp below the North American MSCI index. In comparison, European acquirers continued to fare well with a positive performance 2.4 pp above the European MSCI index, even though the volume of deals completed was at its lowest level since 2009.
Steve Allan, M&A Practice Leader for Europe at Towers Watson, said:
“Asia-Pacific has steadily increased deal volumes throughout the year in contrast to Europe which has seen a steady decline in the number of deals taking place. Uncertainty and poor performance in the Eurozone have contributed to European acquirers having engaged in fewer deals since their peak in mid-2011. Yet those companies that have seen deals through to completion, continue to perform well compared to their peers and add value for shareholders. In stark contrast, the volume of activity in the North American market belies the negative returns for acquirers. It will be interesting to see how these deal volumes develop in 2013 and whether Asia can confirm its position as the second largest M&A market, building on its growing M&A experience and best-practice expertise.”
Figure 01. Shrinking European M&A market – Number of M&A deals completed in 2012
North America 422 Europe 128
Asia Pacific 183
The research shows the fourth quarter was the busiest of the year, with 268 deals taking place over the $100 million mark; the highest level since the study began in January 2008. Of the sectors analysed, financial services continues to record strong year-end returns, 3.7 pp above the MSCI industry index but consumer products and services saw the biggest adjusted returns of the year, 6.8 pp above the index. High-tech was the lowest performing industry sector with a return of 4.9 pp below the index with healthcare closely behind 4.2 pp below its index. The record volumes in the fourth quarter could well be an indication of activity beginning to return to the M&A market. If current impediments to business confidence can be resolved, then this uptick may become more pronounced in 2013. The continued success of the financial sector is no great surprise, with outperformance being fuelled primarily through the sale of distressed assets that have a lot of upside potential. High-tech has shown itself to be difficult territory for acquirers to provide positive results, with the complexity of the companies involved – and the deal structures – proving to be a difficult barrier to overcome. Evidence suggests a shift away from financially-incentivised deals to transactions that are strategic in nature, as firms look to strengthen their market position and target companies operating in familiar sectors where buyers feel more confident in their ability to successfully execute the deal and integrate their
new acquisition. As stability returns to the market, it is likely that firms will become increasingly confident and the proportion of financially-incentivised deals will rise again, as we have seen in previous quarters. Additional research produced by Towers Watson and mergermarket found that M&A activity in Asia-Pacific has not been dampened by the global economic downturn. According to a report entitled Globalising Asia Pacific: Maximising the Value of Human Capital in Outbound M&A 2012, for the first time, saw more Asian companies buying outside the region (‘outbound’ deals) than outside companies buying into the Asia-Pacific region (‘inbound’ deals). In 2010, outbound M&A accounted for roughly 40% of cross-border M&A activity in Asia-Pacific, but by the first half of 2012, it had already accounted for more than 50%. This report provides more evidence that Asia-Pacific companies are becoming major players in the global M&A market. But rapid inter-regional expansion also brings with it increasing challenges, both ‘soft’ factors such as culture, leadership and communication as well as hard costs such as pension and benefit liabilities. It is therefore important that companies have the kind of strategic integration plans in place that can make the difference between success and failure following a merger or acquisition.
2 Asia opens up widest margin over Europe for M&A deals
towerswatson.com
Towers Watson’s top five predictions for the M&A market in 2013:
1. Late 2012 surge proves to be a blip. Despite the large number of transactions completed in the final few weeks of the year, this is more likely to be a rush to the finish line for existing deals rather than signalling an upward trend. Volumes in Q1 2013 are therefore likely to suffer as a result. 2. European deal volumes to remain subdued. 2012 was bad for European acquirers and 2013 volumes are unlikely to show much improvement. Whilst we remain optimistic that confidence may start to slowly return in the second half of the year, we would not expect this to be strong or fast enough to see a significant uptick in completed deals. 3. North American deal activity to remain stable. Stability will be the watchword for M&A in North America during the first half of 2013, after which we may find a surge in activity as the economic conditions continue to improve and confidence grows. 4. Asian market continues to fly. Led by Chinese and Japanese firms, Asia-Pacific acquirers will continue to grow in confidence, branching out to do deals further afield as the region continues to assert its recently acquired dominance over Europe in terms of M&A transactions. 5. Chinese firms to enter the European mega-deal market. The conditions could be right this year for Chinese firms to enter the European M&A market in a big way. Expect some big name companies to be targeted by cash-rich Chinese organisations. Figure 02. M&A quarterly analysis
Percentage points 10 8 6 4 2 0 -2 -4 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010
2.1 2.0 4.0 2.2 4.0 4.3
The line below (2.2 pp) shows the median-adjusted performance of all acquirers throughout the period.
We feel that this is the year in which Chinese companies enter the European takeover market in a big way. Current economic conditions in Europe will continue to restrain confidence, so buyers with healthy balance sheets are going to find a market populated with willing sellers but relatively few competing bidders. We have seen continued growth of the Asian M&A market recently, but while Japanese corporations have been notable in their cross-border activity the Chinese have tended to be much more domestically focused. Our expectation is that this could be the year when this changes and Chinese buyers will spread their wings and take advantage of the opportunities Europe presents. This means we could see some big name European brands being snapped up by Chinese giants and we would not be surprised if these form several of the top 25 biggest deals of 2013. Acquirers should remember though that while there is still value to be had in Europe, carefully planned integration is required for success, and that cross-border deals in particular, can raise significant challenges.
Further year-end 2012 analysis also highlighted
• Acquirers performed immaterially below the Index in the fourth quarter of 2012 (0.2 pp). The three year rolling average performance for global acquirers is currently at 1.9 pp with the long-term performance since the start of the QDPM in Q1 2008 currently at 2.2 pp. See Figure 02. • In line with the previous quarterly updates, the best performers against their industry peers were acquirers in the consumer products and services sector, outperforming their index by 6.8 pp in the year-to-date period, followed by those in the financials sector, which outperformed their index
8.5
The red line below (1.9 pp) shows the median-adjusted performance of all acquirers over a three year rolling period.
4.9 5.1 4.1 2.5 1.5 1.7 -0.8 -0.2 -2.7
4.3 3.1
-1.0 -2.8
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Acquirers performed immaterially below the Index in the fourth quarter of 2012 (-0.2 pp). From the first QDPM (Q1 2008) until the end of 2011, acquirers performed better than the Index in all but two quarters. However, acquirers then underperformed the Index in three quarters during 2012. Despite this recent poor performance, the long-term performance remains positive, currently at 2.2 pp above the Index. The analysis of acquirer performance using adjusted total returns shows a performance of 0.3 pp below the Index for Q4 2012. NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise.
towerswatson.com
Asia opens up widest margin over Europe for M&A deals 3
Q4 2012
by 3.7 pp in the same period. At the other end of the spectrum, acquirers from the healthcare and high-technology sectors significantly underperformed in the YTD period, posting a performance of 4.2 pp, and 4.9 pp below their index respectively. See Figure 03. • Fortune favoured the bold in the last quarter of 2012, with both cross-border and cross-regional acquirers outperforming their peers which acquired closer to home. Domestic acquirers performed 1.9 pp below the index versus 2.4 pp above for their cross-border equivalents. Intra-regional acquirers performed just below the Index (-0.4 pp), which is lower than their cross-regional acquiring counterparts, who outperformed the index by 0.3 pp. Interestingly, the acquirers who bought targets in related sectors, for example, intra-sector transactions, underperformed the Index by 0.6 pp compared to
a performance of 1.2 pp above the Index posted by those who completed transactions outside their own sector. • Quick deals outperformed slow deals in this quarter, albeit with a small difference at 0.2 pp above the index compared to 0.4 pp below the Index, respectively. (Note that ‘quick’ deals are those which completed within 70 days of their announcement and ‘slow’ deals are those which took 70 days or longer to complete.) Acquirers buying medium-sized targets underperformed those buying large targets, with 1.6 pp below the Index for acquirers of medium-sized businesses (lower than $1bn deal value) versus 3.1 above the Index for acquirers of large business (over $1bn deal value).
Figure 03. M&A industry analysis: 2011 and 2012 Acquirer returns adjusted to the MSCI industry index
Percentage points 15 10 5 0
-0.5 -4.2 6.8 3.5 1.6 1.5 4.2 5.5 3.7 2.4 1.9 3.0 -2.4 -4.9 -6.5
0.3
-5 -10 -15 Consumer products and services 2011 Consumer staples 2012 Energy and power Financials Healthcare
High technology
Industrials
Materials
NB: The share price returns have been adjusted to Index returns over the corresponding period.
4 Asia opens up widest margin over Europe for M&A deals
towerswatson.com
Figure 04. M&A deal type analysis Domestic Cross-border Intra-regional Cross-sector Intra-sector Cross-sector Quick deals Slow deals Q4 2011 3.9 -0.6 1.6 5.0 0.1 7.5 3.9 1.9 Q4 2012 -1.9 2.4 -0.4 0.3 -0.6 1.2 0.2 -0.4 YTD 2011 3.4 2.5 2.8 2.5 3.4 2.0 4.1 1.3 YTD 2012 -0.8 -0.7 0.3 -2.8 -0.8 0.0 -0.8 -0.4
NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise. ‘Quick’ deals refer to those transactions which had a median time to completion of less than 70 days, whereas ‘slow’ deals are those which had a time to completion more than or equal to 70 days for the period.
Towers Watson Quarterly Deal Performance Monitor Methodology
• Focuses on deals completed in 2012 (1 January – 31 December 2012). • All analysis conducted from the perspective of the acquirer. • Share price performance within quarterly study measured as 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 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. • Deal data sourced from Thomson One Banker. • Total number of deals – 768.
About Human Capital M&A
Towers Watson’s Human Capital M&A Practice advises clients around the human capital aspects in a deal situation. This ranges from key elements of a financial due diligence through to the integration of the workforce post completion.
Further information
For further information about the research, or for help with your M&A activity, please contact your Towers Watson consultant, or
Steve Allan
+44 20 7170 2113 steve.allan@towerswatson.com
towerswatson.com
Asia opens up widest margin over Europe for M&A deals 5
Appendix A Summary statistics of deals completed in 2011 and 2012 2011 All Asia-Pacific Europe North America Rest of the world Consumer products and services Consumer staples Energy and power Financials Healthcare High technology Industrials Materials Media and entertainment Retail Telecommunications Domestic Cross-border Asia-Pacific Europe North America Rest of the world Intra-regional Cross-regional Asia-Pacific Europe North America Rest of the world Intra-sector Cross-sector Asia-Pacific Europe North America Rest of the world Quick deals Slow deals 796 176 201 374 45 45 51 123 93 89 75 99 119 39 33 30 461 335 71 136 103 25 588 208 40 76 73 19 567 229 75 49 94 11 396 400 Average deal value ($m) 924 737 1,175 890 807 347 671 1,007 1,263 1,019 529 837 935 1,132 710 1,732 900 957 634 1,217 887 741 891 1,015 845 1,254 934 724 1,021 682 455 714 852 636 441 1,402 Median deal value ($m) 320 282 340 325 238 225 274 268 350 365 325 320 332 306 580 430 315 325 315 349 340 262 257 455 2012 769 183 128 422 35 36 54 127 96 69 94 92 113 34 30 23 509 259 69 86 85 19 583 184 48 61 63 12 574 194 59 32 100 3 395 373 Average deal value ($m) 913 569 920 1,077 712 1,267 846 1,295 766 1,173 717 906 817 572 345 791 987 767 494 1,027 770 570 961 764 547 921 839 436 779 742 402 794 929 614 502 1,348 Median deal value ($m) 318 285 314 335 475 266 309 360 244 343 305 279 393 308 221 321 328 314 324 314 292 297 267 400
6 Asia opens up widest margin over Europe for M&A deals
towerswatson.com
Appendix B Top 25 deals by value of transaction
Value of transaction ($m) 29,370 25,818 24,002 20,098 16,183 12,450 11,850 11,461 9,432 8,876 8,855 7,840 7,183 6,578 6,121 6,003 5,850 5,566 5,561 5,550 5,261 5,200 5,000 4,852 4,831
Date announced 21/07/2011 10/01/2011 16/10/2011 18/04/2011 21/09/2011 15/08/2011 23/04/2012 21/05/2012 03/02/2011 16/06/2011 04/07/2012 28/04/2011 29/06/2012 06/08/2012 20/03/2012 25/04/2012 24/05/2011 27/03/2012 16/06/2011 10/09/2012 30/04/2012 04/11/2011 15/03/2012 09/07/2012 07/03/2011
Date effective 02/04/2012 03/07/2012 25/05/2012 14/06/2012 26/07/2012 22/05/2012 30/11/2012 30/11/2012 01/10/2012 17/02/2012 01/08/2012 12/03/2012 09/08/2012 13/08/2012 17/12/2012 31/10/2012 05/04/2012 07/08/2012 26/03/2012 30/11/2012 05/10/2012 16/08/2012 31/07/2012 25/12/2012 08/03/2012
Acquirer name Express Scripts Inc Duke Energy Corp Kinder Morgan Inc Johnson & Johnson United Technologies Corp Google Inc Nestle SA Eaton Corp Nippon Steel Corp Capital One Financial Corp Volkswagen AG Exelon Corp Bristol-Myers Squibb Co Kinder Morgan Energy Partners Glencore International PLC Watson Pharmaceuticals Inc Brasil Telecom SA Ageas SA/NV Energy Transfer Equity LP Plains Expl & Prodn Co Energy Transfer Partners LP Anglo American PLC Cisco Systems Inc WellPoint Inc Western Digital Corp
Target name Medco Health Solutions Inc Progress Energy Inc El Paso Corp Synthes Inc Goodrich Corp Motorola Mobility Holdings Inc Pfizer Nutrition Cooper Industries PLC Sumitomo Metal Industries Ltd ING Direct USA Dr Ing hcF Porsche AG Constellation Energy Group Inc Amylin Pharmaceuticals Inc Tennessee Gas Pipeline Co LLC Viterra Inc Actavis Group Tele Norte Leste SA Ageas NV Southern Union Co BP PLC-Certain Non-Strategic Sunoco Inc De Beers SA NDS Group Ltd Amerigroup Corp Viviti Technologies Ltd
towerswatson.com
Asia opens up widest margin over Europe for M&A deals 7
Towers Watson 71 High Holborn London WC1V 6TP
Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, financial and risk management. With 14,000 associates around the world, we offer solutions in the areas of employee benefit programmes, talent and reward programmes, and risk and capital management.
Towers Watson is represented in the UK by Towers Watson Limited and Towers Watson Capital Markets Limited. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. To unsubscribe, email eu.unsubscribe@towerswatson.com with the publication name as the subject and include your name, title and company address. Copyright © 2013 Towers Watson. All rights reserved. TW-EU-2012-29952. January 2013.
towerswatson.com 