M&A optimism takes firmer hold as momentum continues to build – London Business News | Londonlovesbusiness.com

Global mergers and acquisitions (M&A) activity maintains the positive momentum achieved at the start of 2024, with deals completed during the second quarter improving upon the same period last year, according to research from WTW’s Quarterly Deal Performance Monitor (QDPM).

Run in partnership with the M&A Research Centre at Bayes Business School, the data reveals 166 deals valued over $100 million were completed globally during the second quarter of 2024, exactly matching the number of deals closed in the first three months of the year.

The Q2 figure surpasses the 130 deals closed during the same period in 2023, representing a 28% increase in volume.

The 35 large deals (valued over $1bn) completed in the second quarter of 2024 represent the third quarterly rise in a row, following 34 deals closed in the first three months of 2024 and 32 during the previous quarter.

Also, with four mega deals (valued over $10bn) completed in the second quarter of 2024, a total of nine mega deals have been closed so far this year, compared to just three during the first six months of 2023.

Acquisitions completed within the same industry sector (intra-sector deals) have been rising as a proportion of overall M&A, compared to cross-sector acquisitions. Since the start of 2023 intra-sector acquisitions have increased from 57% of the total in Q1 2023 to 74% in the latest quarter. This indicates a trend for sellers carving off non-core assets and buyers seeking deals closer to home in order to consolidate their own markets.

Jana Mercereau, Head of Europe M&A Consulting, WTW, said: “Dealmaking in the first half of 2024 suggests the market may be ready to shake off the post-pandemic doldrums and return to pre-Covid levels and deal behaviour. Rising market confidence on the back of expected interest rate cuts, improved financing conditions, low volatility and narrowing valuation gaps, will help uncork the deal backlog.”

Compared to the strong equity market performance worldwide, which has made valuations more expensive, companies completing M&A deals have struggled to compete with the wider market^[1], underperforming by -9.3pp (percentage points) between April and June 2024. This figure is based on share price performance and continues the underperformance of acquirers from the previous quarter (-13.1pp).

Despite these latest performance figures, the long-term 15+ year trend still shows that acquirers have outperformed the market since the global financial crisis, by +1.4pp.

The M&A market in North America remains challenging. Acquirers underperformed their regional index by -7.7%, making it the sixth consecutive quarter that buyers have been outclassed by industry peers. With 90 completed deals, this also represents a drop in volume compared to the first quarter of 2024 (97 deals).

European dealmakers also struggled to generate value from transactions. Having last outperformed their regional index in 2021, they underperformed once more during the period April to June 2024 by -10.7pp with 34 deals completed, down from 37 deals closed in Q1 2024.

The M&A data shows that once again the Asia Pacific market fared better, continuing to be the only region to outperform its regional index. For ten out of the previous 11 quarters, buyers in the region have outclassed their index in terms of share price performance, most recently by +1pp in the second quarter of 2024, with 38 deals closed. This also represents an increase of seven deals compared to the previous three months.

Notably, the number of deals completed in China – the world’s second largest economy – slumped to just three transactions during the second quarter of 2024. When combined with the nine deals closed in the first three months, this is the country’s lowest level of M&A activity for the first six months of a year since 2010.

Mercereau said: “Despite an upswing in deal numbers so far this year, the threat of stubborn inflation, high interest rates and uncertainty surrounding the U.S. presidential election still risks puncturing dealmaker confidence and the fragile resurgence in M&A activity.

“For this emerging M&A rebound to take hold, dealmakers will need to reduce their exposure to risk by exercising a high-degree of caution, focus on ‘best-fit’ deals and thorough due diligence that allows for extended timelines, combined with a plan for successful integration that maximises M&A value.”