Global M&A activity is expected to continue at a slow pace in 2020, dragged down by a potential decline in deals in North America, where companies are in "wait-and-see mode" amid lingering trade, economic and political uncertainties, Willis Towers Watson PLC said.
The U.S. will drive the M&A slowdown, with companies reluctant to take on big deals as they prepare for a possible recession, according to the advisory and broking firm. In addition to a slowing U.S. economy, trade tensions and election-related market volatility have put several transactions in the wider North American region on hold, said Duncan Smithson, senior director for M&A at Willis Towers Watson.
"Market conditions are increasingly challenging, yet many investors with plenty of dry powder remain cautiously optimistic about the year ahead," Smithson said, adding that key drivers for pursuing M&A deals would remain unchanged, such as acquisition of new technologies or highly skilled workers.
In 2019, the number of M&A deals in the U.S. with value of more than $1 billion fell to a five-year low of 173, Willis Towers Watson said, citing long-term data it had compiled with Cass Business School. Globally, 774 transactions with value of over $100 million were completed in 2019, down from 904 in 2018 and the lowest since 2013.
Apart from a slowdown, the global M&A market would also "struggle" to add value in 2020, Willis Towers Watson said. In 2019, 42% of the deals worth $100 million that were completed worldwide failed to add shareholder value.
"Last year may have ended with a flurry of deals, but the global picture for mergers and acquisitions was patchy at best," Smithson said.
For 2020, Europe is forecast to retain the top spot in deal-making for the second year in a row, despite business investment in the U.K. likely remaining on hold due to Brexit uncertainties, Willis Towers Watson said. Deal volume in the U.K. dropped to 31 transactions in 2019, the lowest in 10 years.
In China, M&A volume plunged to 72 in 2019 from a record high of 243 deals in 2015, weighed down by trade uncertainties, fears of a global recession and a sharp decline in outbound Chinese acquisitions.
Other M&A trends to look out for in 2020, according to Smithson, include slower times to close deals beyond the 141-day average for 2019, more activity from private equity buyers, and a rising trend of "acqui-hire" deals, or transactions with the specific purpose of acquiring talent.