Behind the numbers
Mastering M&A
Looking at the decade following the 2008 financial crisis and its aftermath, typical economic recoveries have had a rising stock market. Equity values have also been accompanied by increased strategic activity among corporates, as rising equity values boost executive confidence in deal-making and enhanced profitability and rising stock prices provide ample firepower to pay for those deals. However, in this re-released report first published in Q1 2018, we observe that deal activity in the U.S. does not seem to be rising in tandem with equity markets, as it has previously. The graph below1 shows us the breaking of that trend, causing one market observer to dub this “M&A MIA”2.
We find this decline in M&A activity puzzling, since growth strategies driven by M&A have consistently outperformed the broader market during the latest recovery. Exhibit 2 revisits an analysis we did at the end of 2016, and shows that those companies that have turbo charged their growth strategies via M&A, in particular since 2012, have consistently outperformed the market and their peers on a TSR basis, and continue to do so3.
1. Source: Datastream, Credit Suisse IDC – December 13, 2017.
2. Source: Authers, John. “Authers’ Note: M&A MIA”, Financial Times, December 19, 2017.
3. This figure has been adopted and updated from our previous Credit Suisse Corporate Insights series “Tying the knot: M&A as a path to value creation”. Universe consists of companies in the U.S., Canada, and Developed Europe across all sectors with market capitalization greater than $200mm (3,462 companies). Acquirers are defined as the companies with cumulative M&A spend as a percentage of cumulative cash flow between 2011 and 2017 in the top 25% of universe, and non-acquirers are defined as companies in the bottom 25% of M&A spend as a percentage of cumulative cash flow. Sourced from Credit Suisse’s HOLT framework and global database.