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Sep 22, 2015

Deal-makers outperform MSCI World Index, with pharmaceuticals on top

Companies that carried out medium-sized deals outperform index in Q3 by 14 percentage points

Across all sizes, companies that carried out takeovers outperformed the MSCI World Index by an average of 12 percentage points in the third quarter of 2015, doubling the outperformance of the previous quarter, according to research by Towers Watson and Cass Business School.

The performance gap between deal-makers and other companies is the biggest since Towers Watson began keeping track in 2008, and marks a third straight year of outperformance, the firm says in its Quarterly Deal Performance Monitor.

Companies that carried out medium-sized takeovers – deals of between $100 mn and $1 bn – outperformed the MSCI World Index this quarter by 14 percentage points while those that carried out larger deals outperformed by 7 percentage points, Towers Watson says.

‘More and more medium-sized deals are joining the M&A party, and acquirers’ post-deal performance is adding a weight of evidence for the financial value created through them,’ says Steve Allan, M&A practice leader for EMEA at Towers Watson. ‘Increasingly it’s not just the big boys that are making it work. We are seeing significant financial value added right across the size spectrum.’

The research shows companies that took 70 days or longer to complete their takeovers beat the index by 19 percentage points, while those that completed faster deals outperformed by only 8 percentage points.

Acquirers in the pharmaceutical sector outperformed by an average of 18 percentage points while those in the industrials sector outperformed by 14 percentage points, Towers Watson says. Acquirers in Asia-Pacific led performance by region, gaining 38.7 percentage points more than their regional index.

‘We are well and truly in a merger wave,’ Allan says, though he cautions that ‘this could be the year we begin to see more deal-makers getting their fingers burned, and by the end of the year we may have a new benchmark deal to hold up as how not to do it.’

In the latest M&A move, pharmaceutical company Mylan says it is moving toward cancelling the stichting defense it adopted earlier this year to prevent its takeover by Teva Pharmaceutical Industries, the Wall Street Journal reports.

Mylan created the stichting – a shell company under an obscure but powerful Dutch law that has veto rights over any takeover attempt – earlier this year. Now the company says it will cancel the preferred shares it issued to the stichting.