Global Deal Performance Disappointing in Third Quarter

Merger and acquisition (M&A) activity certainly has seen its share of ups and downs in 2009. When the financial markets tumbled last fall, M&A activity slowed significantly as credit dried up and aversion to risk intensified. Still, some companies continued to pursue and close deals, lured by lower-priced assets and opportunities for future growth. Recent analysis conducted by Towers Perrin and the Cass Business School in London underscores the market's volatility as well as the gap between perception and reality in this area.

Deal makers still in the money but lagging behind rest of market

According to Towers Perrin's Quarterly Deal Performance Monitor, a new review of deal making based on analysis by the Cass Business School, companies that completed deals during the third quarter (July 1 to September 30, 2009) lagged behind the performance of their deal-averse peers by 2.8%. By contrast, in the second quarter when the market was down overall, the deal-making group outperformed the MSCI World Index by 8.5%. 

While third quarter analysis shows that recent deal performance has not matched resurging optimism in the market, the deal performance picture is more positive year to date: Deal makers that have completed transactions since January have outperformed the market by 2.6%. The third quarter findings also show that the deals of U.S. companies that shopped at home rather than abroad performed 7.1% better than cross-border deals.

Staying above the economic fray: An M&A checklist

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

• More diligent due diligence: Overconfidence and a rising share price during the bid phase can lead companies to cut corners, which can be very damaging to deal performance. 
• Integration execution: Grab synergies fast, and focus on areas of critical value, i.e., leadership, culture, total rewards, communications, workforce deployment, selection and staffing, and HR service delivery. 
• Solid preparation: Whatever the market conditions, staff should be well trained to handle deals; being ready can ensure execution speed and deal quality.