Companies that opened their M&A war chests this year have been left disappointed after the market recorded its worst quarterly performance in at least 10 years, research shows.
The global deal frenzy is expected to hit a post-crisis high this year after cheap debt, Donald Trump’s tax cuts and improved market sentiment encouraged deal-hungry businesses to go on a shopping spree. But a study published today finds that global M&A performance is in freefall just as deal numbers close in on record levels.
The research, conducted by Cass Business School and insurer Willis Towers Watson, reveals that the share prices of acquirers underperformed the MSCI World Index by 6.1 percentage points during the three months to June – the worst performance for the quarter since records began in 2008. Broken down by region, dealmakers in Asia-Pacific fared the worst with an underperformance of 21.7 percentage points, while European acquirers only lost 0.6 percentage points.
“Despite the optimism and appetite for pursuing growth through M&A, the poor performances that have followed completed deals suggest investors right now have very little margin of error,” said Jana Mercereau, Willis Towers Watson’s M&A expert. “As M&A activity accelerates towards its peak, the importance of discipline and strong diligence grows so companies can mitigate risks and avoid the mistake of paying over the odds.”
The figures do not appear to have deterred the insurance broker from chasing deals itself. John Haley, the boss of the firm, created in an $18bn (£13.6bn) merger three years ago, told the Financial Times over the weekend that he was prepared to do more deals.