Global Deal Performance Disappoints in Third Quarter

STAMFORD, CT., October 14, 2009 — Companies that completed deals during the third quarter of 2009, when the MSCI World Index reported a 13.5% return for the quarter, lagged the performance of their deal-avoiding peers by 2.8%, according to data from the first Towers Perrin Quarterly Deal Performance Monitor.  In the second quarter of the year, by contrast, when the market was down overall, the deal-making group outperformed the MSCI World Index by 8.5%. 

While this quarter's analysis shows that recent deal performance has not matched resurging optimism in the market, the deal performance picture is more positive year to date, with deal makers that completed their transactions since January outperforming the market by 2.6%.*

Towers Perrin, a global professional services firm that works with clients on key aspects of M&A transactions, developed the new Quarterly Deal Performance Monitor based on an analysis by the U.K.'s Cass Business School. It examines the performance of all global transactions with a value greater than $100 million on a quarterly basis against the MCSI World Index. Performance is analyzed from six months before deal announcement through to the market close at the end of the relevant quarter. The current results cover the period between July 1, 2009 and September 30, 2009.

Mary Cianni, who leads Towers Perrin's global M&A practice, said: "The Quarterly Deal Performance Monitor provides a view into deal making that differs from the typical analysis of deal volume and activity. Our focus is on whether and to what extent value is being created from these deals."

"The most current results underscore the level of volatility in the market and in deal making broadly, as well as the gap between perception and reality in this area. In our data from the second quarter — when conventional wisdom suggested deals would be problematic — deal-makers reaped some rewards for their courage, relative to the market overall. This quarter, by contrast, when people were far more optimistic about mergers and acquisitions, actual deals that closed in the quarter did not perform at par with the market overall."

"When we look at deal performance since January, however, there is greater cause for optimism, since deal makers have outperformed the market throughout a very turbulent period by 2.6%."

The third quarter findings also show that it was better for companies to stay at home and play it safe than shop abroad, as non-cross-border deals performed 8.5% better than the market since the beginning of the year. By contrast, cross-border acquirers only exceeded market performance by 1.4%. Interestingly, in the last quarter, most deals completed by U.S. acquirers were for domestic targets (77%), whereas in Europe an overwhelming majority (85%) of acquirers went shopping abroad.

Cianni concluded: "Bargain hunters in early 2009 were able to capitalize on good assets at reduced prices. But, as confidence returned to the market, buyers needed to choose targets where they could really add value."

M&A: The Critical List

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

• Be diligent about due diligence: Over-confidence and a rising share price during the bid phase can lead companies to cut corners, which 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, selection and staffing. 
• Be prepared: Whatever the market conditions, companies should ensure staff are trained to deal with deals.  Being ready will ensure execution speed and quality.

Notes to Editors

* The deal performance picture is more positive from a year-to-date perspective, as companies that have been bold enough to complete a transaction in this turbulent period have outperformed the market by 2.6%.

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 completed between January 1, 2009 and September 30, 2009 (197 deals) were included for year-to-date figures, and deals completed between July 1, 2009 and September 30, 2009 (66 deals) were included for third quarter. 
• All deals where the acquirer owned less than 50% of the shares of the target before 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. All deals where the acquirer or the target was from the real estate sector have been removed. (54 deals were removed.)
• Only M & As 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 the median.
• The time period for the performance analysis is from six months prior to deal announcement through to the market close on September 30, 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.

About Cass Business School

Cass Business School delivers innovative, relevant and forward-looking education, training and research. Its M.B.A., Specialist Masters and Undergraduate programs have a reputation for excellence in professional education, with the M.B.A. and M.S.c Management programs consistently ranked in the global top 20 by the Financial Times. The school undertakes research of national and international significance and supports almost 100 Ph.D. students. Cass has the largest Finance Faculty and the largest Actuarial Science & Statistics Faculty in Europe.  For further information, visit www.cass.city.ac.uk.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program 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, New Zealand and the Middle East. More information about Towers Perrin is available at www.towersperrin.com