Corporate deal makers once again outperformed their non-acquisitive peers on a global basis in the fourth quarter of 2010, surpassing the MSCI World Index by 4.9%. This represented a high for the year for global acquirers, who maintained their market advantage throughout 2010, collectively beating the Index by 4.3% in the first and third quarters, and by 3.1% in Q3.

Significantly, the most experienced acquirers -- those completing two or more deals over the past 30 months -- fared even better, according to the latest Towers Watson Quarterly Deal Performance Monitor analysis, beating the Index by 7.8%. By contrast, those companies that completed only one deal outperformed the market by a smaller margin of 4.5%. The most recent study, commissioned by global professional services company Towers Watson and based on a quarterly analysis by the U.K.'s Cass Business School, also looked at data aggregated over the last two and a half years of the quarterly analysis.

?Based on more than two years of evaluating deal performance, it's clear that companies are learning from experience -- their own and others,? said Mary Cianni, head of Towers Watson's global M&A practice. ?And they're benefiting from that experience in tangible ways. The fact that frequent acquirers are outperforming the more occasional acquirer speaks to this, as does the consistency of deal makers' superior market returns over a multiyear period. The experienced acquirers have an advantage in being able to build up internal expertise quickly and learn from the deal process. But with more companies now considering inorganic growth strategies, we're seeing increased interest from them in understanding the key success drivers, especially as they relate to people and cultural integration issues.?

North America leads the world

From a regional perspective, the performance picture varied, with North American acquirers beating the market by 6%. But performance lagged the general market in both Europe (-6.1%) and Asia (-5.8%) during this period. In part, this reflects the fact that cross-border deals accounted for half of all deals in Asia and two-thirds in Europe, but only a quarter in North America.

?Europe tends to have more cross-border deals than any other part of the world,? said Steve Allan, European head of Towers Watson's M&A practice. ?Cross-border deals are widely acknowledged to be challenging and more difficult to execute successfully. When embarking on such acquisitions, deal makers need to be especially well prepared, with detailed integration plans, committed leadership and support resources, and a strong project management capability.?

In Asia Pacific, deal value was also down in the final quarter of 2010. However, the strong third quarter 2010 performance of 14.5%, as reported last quarter, helped Asian acquirers beat the Index by 3.2% overall in 2010.

?The Asia Pacific region is volatile and unpredictable, which brings significant opportunity as well as potential challenges,? said Marco Kaster, who heads Towers Watson's M&A practice in Asia. ?The stronger economy in the region has encouraged more activity, both within and outside the region, and now Asian companies have to show results from those deals, putting additional pressure on them to become more flexible and adaptive in their practices as they learn how to deal with diverse cultural factors.?

M&A: The critical list for deal makers

Regardless of economic climate, Towers Watson recommends three critical steps for deal makers:

  • Be diligent about due diligence. Careful and informed analysis during the bid phase is essential to avoid making potentially significant mistakes. Successful buyers understand how to manage this process with appropriate speed in an environment of incomplete information. They also understand the nuances of conducting due diligence across borders when access to information may be more limited.
  • Engage your internal deal partners early. Getting a head start on integration planning adds value and having ?M&A ready? leaders and managers helps to jump-start the integration process.
  • Focus on integration execution. Grab synergies fast, and maintain momentum in key areas of value, such as leadership, communication and talent retention, all of which continue to be key differentiators between successful and less than successful deals.

Experienced acquirer analysis

Experienced acquirers are defined as firms that undertake two or more deals. In this period there were 527 such deals undertaken by 214 companies.

Cass analyzed the acquirer's share price six months prior to announcement and six months after completion for deals with a value of $100 million or above, and compared the change to the MSCI World Index to demonstrate performance against the market as an indicator of success. This included deals completed over 10 quarters between Q1 2008 and Q2 2010.

Towers Watson Quarterly Deal Performance Monitor methodology

  • Focuses on deals completed in the fourth quarter of 2010 (October 1 through December 31)
  • Sample data compared on a quarterly basis
  • All deals have a value of $100 million or above
  • All analysis conducted from the perspective of the acquirer
  • Share price performance measured as percentage change in share price from six months prior to the announcement date to the end of the quarter (fourth quarter 2010)
  • 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: 215

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 www.towerswatson.com.

Towers Watson
Whitney Kuhn, +1 703-258-7648
whitney.kuhn@towerswatson.com
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Laura Ryan, + 1 646-935-3970
laura.ryan@ketchum.com