Asia-Pacific Leads World for Deal Performance in Third Quarter 2010

Oct 25, 2010, 06:38 ET from Towers Watson

LONDON, October 25, 2010 /PRNewswire/ --

- Cross-Border Deals Outperformed Domestic Deals for Second Quarter in a Row

In a quarter that brought positive financial results to deal-makers globally, those in Asia-Pacific led the pack by a significant margin, beating the MSCI World Index [the Index] by an impressive 14.5 percentage points, according to the latest Towers Watson Quarterly Deal Performance Monitor. This represented a significant increase for Asia Pacific acquirers from the prior quarter - and dramatically surpassed results for acquirers in North America and Europe, who beat the Index by 1.4 and 6.7 percentage points, respectively. Overall, the deal-makers in this quarter's group beat the Index by 4.3 percentage points, a marked uptick from 3.1 percentage points in the prior quarter. Even more telling, the overall performance year-to-date for deal-makers is 3.9 percentage points above the Index.

The latest results of this quarterly M&A study, commissioned by global professional services company Towers Watson and based on an analysis by the UK's Cass Business School, continue a consistent pattern of positive performance for deal-makers, affirming that deals do consistently create value for shareholders.

While Asia Pacific led in performance, it did not lead in the number of deals completed this quarter. North America took this crown with a total of 98 deals, over three times more than the other two regions - and up slightly from the 94 deals recorded for North America in the prior quarter. In Asia-Pacific, deal activity was virtually unchanged from the second to third quarters, and the mix of domestic to cross-border deals held constant as well.

"This quarter's Deal Performance Monitor highlights the notable rise in performance by Asia-Pacific acquirers, which suggests that Asian companies may be more focused on getting their deals right than doing more of them right now," said Marco Kaster, Towers Watson's newly appointed M&A practice leader for Asia Pacific. "To a great extent, this strong rise in performance stems from Asian companies' improvement in their due diligence capabilities and their recognition that an early focus on people integration issues is more crucial to the success of the deal than ever before.

"While deal activity in the region increased only slightly quarter to quarter, we anticipate that deal volume in Asia-Pacific will grow," Kaster continued. "As the economy improves, countries such as China and India have greater confidence in the credit markets and companies in the region will be more active in seeking growth opportunities."

"Our Deal Performance Monitor still bears out the conclusions from much of our past research that deals can and do create value," said Steve Allan, Towers Watson's M&A practice leader for Europe, "even though the quarterly results show a fair degree of variability in regional results."

"That doesn't mean that companies based in Asia Pacific have become overnight experts in deal due diligence and integration preparation - although our client experience does point to a greater concentration and focus on pre-acquisition preparedness. But it does indicate the market increasingly recognises that Asian company deals are a compelling route to growth and thereby attract a premium in shareholder value."

Cross-Border Deals Show Strength Again

The other interesting finding this quarter is that, for the second quarter in a row, cross-border deals outperformed domestic deals, albeit by a very slight margin - with foreign acquirers beating the Index by 4.5 percentage points, compared to 4.3 points for domestic acquirers. While too early to call this a trend, it's a significant finding in a period where more and more companies are likely to be shopping for deals outside their home countries. Consistent with our past analyses, most such deals occurred in Europe, where 66% were cross-border, compared to 30% in Asia-Pacific and just 17% in North America.

"Because cross-border deals are more complex by nature, and therefore harder to complete, they've typically created less value than domestic deals," said Mary Cianni, head of Towers Watson's global M&A practice. "But we saw this traditional finding turned on its head for the first time in our Deal Monitor last quarter. While the results are more muted this quarter, they are still positive. While it's too early to call this a sea change, it does suggest that companies are applying some of the lessons learned in domestic deal-making to cross-border situations. While there's no question such deals will remain harder, given the national cultural differences that come into play, learning to manage through these issues will also be paramount as more and more companies seek growth outside their borders or regions."

    M&A: the critical list for deal-makers

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

    - 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.

    Towers Watson Quarterly Deal Performance Monitor Methodology

    - Focuses on deals completed in the third quarter of 2010 (July 01-
      September 30)

    - Sample data compared on a quarterly basis

    - All deals have a value of $100m 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 (Q3 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 - 163

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

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    Daniel Kahn

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