Towers Perrin Analysis Shows Deal Ditherers Are Losing Out
HONG KONG, July 7 /PRNewswire-Asia/ -- Leading companies that have completed deals since the collapse of Lehman Brothers are being rewarded with market outperformance of 6.3% compared to their deal-avoiding peers. According to global professional services firm, Towers Perrin, fears that mergers and acquisitions (M&A) are riskier than before due to valuation difficulties post-Lehman seem to be misplaced. Analysis published today by the firm concludes that downturn deals can still deliver, rather than destroy, value.
The analysis from Towers Perrin and the UK's Cass Business School finds that companies forging ahead with transactions ('Brave Acquirers') are picking up bargains and seeing better returns than those not doing deals ('Deal Avoiders'). The study analysed 204 deals with a value greater than $100 million which completed between 15th September 2008 (when Lehman filed for bankruptcy) and 31st May 2009. On average, dealmakers showed negative shareholder return of 25.4%, compared to 31.7% negative shareholder return for the rest of the market.
In fact, the more deals done by a company, the better its performance. Repeat acquirers in the same period - of which there were 15 companies completing 32 deals - outperformed the MSCI World Index by 16.7%. Regionally, companies acquiring in the US experienced the best market performance, with a 10.0% better return relative to the global market.
Marco Boschetti, Towers Perrin's Head of Global M&A and Restructuring said:
"The collapse of Lehman Brothers marks a watershed in international market activity and we wanted to examine how such a traumatic event may have conditioned M&A behaviour. From our perspective, many companies are dithering over deals, nervous to commit in the post-Lehman world where the line of sight of their investment has shortened. This analysis proves that fortune favours the brave."
Marco Boschetti added:
"Confident companies are acting quickly to capitalise on reduced competition for good assets at better prices. But if they want to sustain market outperformance through and beyond the downturn, companies need a robust execution capability. Indeed, companies can move swiftly but still need to be diligent on the due diligence process, and ensure that they execute the integration effectively and flawlessly. Successful companies use the quiet period between deals to build M&A capabilities and ensure deal teams are ready for the next transaction."
Other findings:
In addition to the general market outperformance data, the analysis found:
-- Companies acquiring within their own country borders outperformed the market by 7.7% - whereas acquisitions across borders only outperformed by 4.0%.
-- Dealmakers in financial services performed only 0.4% better than the global market, yet outperformed their peer group by 14.0%.
-- Healthcare was the best-performing industry, with a 13.8% better return. The technology sector outperformed by 9.3%, and energy by 7.3%.
Making Post-Lehman M&A Work
Marco Boschetti commented:
"'Brave Acquirers' demonstrate how smart deal-making can be part of a well-financed company's armoury during the months of uncertainty ahead. As we work with clients throughout this period, we are seeing that the criterion for deal success resonates irrespective of the financial climate. Indeed, robust due diligence and better post-merger integration planning are lessons which should be applied in a 'conventional' M&A market."
"Companies that are good at deals are always hunting for opportunities and have systems and processes in place to move quickly on the right purchase. Repeat acquirers get better returns because they are resourced well, are flexible enough to react, and are clear about what will work strategically and culturally."
To maximise return on investment, Towers Perrin recommends that downturn dealmakers should:
-- Continue to be diligent about due diligence: jumping into a transaction because the price appears low remains irresponsible and can be hugely damaging.
-- Focus on integration execution: grab synergies fast, and ensure you focus on areas of critical value: leadership, culture, total rewards, communications, workforce deployment and selection & staffing.
-- Be prepared: use the relative lull in M&A activity to tool and train staff - being ready pays off in speed and quality of execution.
Asia Perspective
Steve Allan, Towers Perrin's Asia M&A Head, added that
"Companies across Asia really came out of their shell during this period. We saw companies acquire very quickly and confidently domestically and across borders doing robust due diligence in a timely fashion. This is in stark contrast to the past where mergers in Japan could take up to two years to complete after announcement and Chinese companies jumped into overseas deals without sufficient due diligence making integration activities extremely difficult often destroying value. We saw these practices change over the past year creating positive results for Asia's dealmakers. About 10% of the deals we researched were Asian. These deals performed 7.6% above the market in comparison to companies who were deal averse."
A summary of the analysis by Towers Perrin and Cass Business School is available on request.
Notes to editors:
* Downturn Deal Analysis
The Towers Perrin/Cass Business School analysis was based on data from the Thomson One Banker Mergers & Acquisitions database:
-- Only deals with a value greater than US$100 million (204 deals) completed between 15th September 2008 and 31st May 2009 were included.
-- As a result of the deal, 100% of the target/asset must be owned by the acquirer.
-- Only mergers and acquisitions of companies or business divisions were included. Companies purchasing real estate assets were excluded.
-- All adjustments have been calculated using share price development less index development for the same period, and then averaged by using median.
-- The time period for the performance analysis is from six months prior to deal announcement through to the market close on 31st May 2009. This is the period used to assess share price and to compare to the MSCI World Index. The figures are the median of performance results among the deals.
-- By industry, the only sectors with a statistically significant sample for individual examination were financial services, healthcare, technology and energy.
Performance in comparison to the different indices is shown below for the total database and the regions. Note that the global performance was negative for all indices, and therefore the positive figures below are relative to those negative index figures.
MSCI Regional Industry Number
ALL SAMPLE World adjusted adjusted of Data
adjusted entries
All 6.31% 5.64% 4.82% 204
Before 6.87% 6.17% 6.25% 115
After 5.74% 5.50% 4.55% 89
North America 9.06% 7.85% 2.12% 104
Europe 3.61% 3.54% 3.95% 45
Rest of the
World (Asia-Pac
36 of 54) 7.97% -- 14.70% 54
Energy 7.29% 5.64% 4.52% 26
Financials 0.40% -6.17% 13.97% 35
Healthcare 13.78% 7.59% 2.49% 30
High Tech 9.25% 9.16% 2.10% 31
Cross Border 4.03% 5.01% 3.21% 71
Non Cross Border 7.65% 6.17% 6.29% 133
Multiple Bidders 8.09% 6.13% 5.96% 32
About Towers Perrin
Towers Perrin is a global professional services firm that helps organisations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, programme design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information about Towers Perrin is available at http://www.towersperrin.com .
About Cass Business School
Cass Business School delivers innovative, relevant and forward-looking education, training, consultancy and research. Our dialogue with business shapes the structure and content of all our programmes of study, our executive education programmes and our research. Our MBA, Specialist Masters and Undergraduate programmes have a reputation for excellence in professional education, and with an MBA consistently ranked in the global top 20 by the Financial Times. The school undertakes research of national and international significance and supports almost 100 PhD students. Cass has the largest Finance Faculty and the largest Actuarial Science & Statistics Faculty in Europe. For further information, visit: http://www.cass.city.ac.uk .
For information:
Towers Perrin
Carmen Siu
Tel: +852-2593-4580
Email: carmen.siu@towersperrin.com
