Deal dynamics and trends
The trend of falling conversion rates seen in the public markets is one that was consistent throughout 2012 for the whole market (i.e., public and private markets).
"With deals taking longer to deliver, leading corporates are now more thoughtful about their approach, whether this involves reassessing their corporate strategy, finding new alternatives to traditional deal structures or revisiting underperforming ventures."- Pär-Ola Hansson,
EY, EMEIA TAS Markets Leader
M&A conversion rates
When we look at the conversion of deals from announced to completed we use a rolling nine-month period ending with the quarter in question. We use this window as this is accepted in the market as enough time for most deals to close.
In both 2010 and 2011, the average conversion rate from announced bids to completed deals, for all four quarters, was 67%.
In 2012, that conversion rate fell to an average of 62%. This was not driven by an increase in the level of withdrawn deals, which have remained stable from year to year, but rather because the number of pending bids has increased significantly in the last year.
Also on the increase is the average time to completion. In 2012 this was 52 days (including the pending bids) compared with 48 days in 2011 and 47 days in 2010.
Deal conversion rate
Average time to completion (including pending bids)
Larger deals are making a comeback
There was a significant increase in the average bids value announced for most markets in Q4 2012. In the global sample, average bids value rose by 20% from US$302m in Q3 2012 to US$364m in Q4 2012.
The average deal value of completed deals is also increasing, currently at $231m, up by 9% from Q3 2012’s US$211m.
However, the gap between size of announced bids and completed deals is continuing to widen. It is currently at 63% for Q4 2012 (231/364) compared with 70% in the previous quarter (211/302).
We can see that there is appetite for larger bids, with the average deal value for public bids announced also increasing by 13% to US$841m in Q4 2012. However, these bids continue to pose challenges for management to get them over the finishing line.
The largest transaction in Q4 2012 was Softbank’s 70% investment in US mobile carrier Sprint Nextel, valued at US$35b, as reported by Dealogic. The deal was announced on 15 October and, if it completes, it will be the biggest ever overseas acquisition by a Japanese company.
It is worth noting that none of the largest transactions announced in Q4 2012 had completed by the end of 2012.
The largest transaction of 2012 was the Glencore-Xstrata merger, announced in February 2012 and valued at US$19bn, as reported by Thomson ONE Banker. Following a lengthy process, including a much-debated retention package, the shareholders approved the merger; however, at the time of printing, the deal was still pending, awaiting approval from regulators.
Of the top ten largest transactions announced in 2012, only one had completed by the end of 2012.
In this list, China and Japan match the US and Switzerland with two acquirer nation top spots each.