Deals involving larger targets are more likely to see their deals fail with 75-100% target sales quartiles having 15.2% of failure. Also, the size of the acquirer was a significant factor affecting the probability of deal success or failure: smaller acquirers more likely to fail with a deal failure rate of 18% - compared to the average of 16.1%. However, despite exhaustive research, details on the number of spin-offs and their relative financial value in the EMEA were not publicly available. Below is an outline of the research strategies as well as a deep dive into key findings.
We started our research by looking for resources which directly and credibly provided the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018. In attempting to locate this answer, we conducted exhaustive research through market reports, statistic portals/databases, and trusted media articles. In pursuit of this strategy, we checked research websites like Research Gate, Industry Daily Observer, Business Wire, and PR News Wire. We also checked consulting websites such as Statista, Deloitte, KPMG, PitchBook, Accenture, and McKinsey, and media websites like Reuters, Forbes and The NYT.
Therefore, there doesn't appear to be much data or professional research publicly available on this specific topic. However, we found two reports from PitchBook providing some examples of successful and failed M&A deals in the European market. However, none of the websites provided any information specifically for the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018.
Further research was made to get more data referring to credible financial statistics portals/databases such as Reuters Finance, The Wall Street Journal Quotes, Yahoo Finance, the Market Watch, Stockopedia, and Capital Cube for any financial reports about the requested information. However, this approach also did not deliver any results.
As an alternative research approach, we tried to find the requested information by checking industry-related websites and blogs. We checked Deal Logic, Thomson Reuters, Global PMI Partners, and IMAA Institute among others. However, on the IMAA Institute, we found a report that provided the number and values of M&A broken down by regions. Other reports provided insights into the M&A failure rates and spin-off industry in Europe. Again, none of the websites provided any information specifically for the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018.
Next, we decided to expand the scope of the research to cover market reports, statistic portals/databases, and trusted media articles published earlier to the 24 months time frame with the aim to find any helpful data to calculate the projection of the market of M&A and spin-off in the EMEA in 2018. In order to find such information, we researched again for reports, articles, and statistics through market reports, statistic portals/databases, and trusted media articles. On Reuters, we found some examples of spin-offs in Europe for 2016.
Lastly, information about the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018 seems to be not publicly available. Despite a lack of data, we tried to triangulate the requested data by performing the following calculations.
- Global: 50,874 deals with a total value of $3,968.78 billion.
- Europe: 16,933 deals with a total value of 1,004.31 billion euro. Using a currency converter, the value is $1,129.50 billion. 14,935 of these deals were from Western Europe with a value of 972.2 billion euro ($1093.38 billion) and 2,519 were from Eastern Europe with a value of 47.24 billion euro ($53.13 billion).
- Gulf Cooperation Council: 410 deals with a total value of $45.9 billion.
- The Middle East and North Africa: 755 deals with a total value of $75.6 billion.
- North America: 17,485 deals with a total value of $2018.9 billion.
- Asia Pacific: 15,787 deals with a total value of $1079.89 billion.
- South America: 1,162 deals with a total value of $63.27 billion.
Worldwide countries are grouped into the following business regions: EMEA (Europe, the Middle East, and Africa), NA (North America), LATAM (Latin America or South America) and APAC (Asia Pacific). Since we have data for region except for the EMEA we calculated it as follows:
The number of deals for the EMEA = global deals - NA deals - LATAM deals - APAC deals = 50,874-17,485-15,787-1,162 = 16,440.
However, this value is in contradictory with the number of deals for Europe due to the unclear definition of regions on which the breakdown is based.
Therefore, we tried to find an estimated value using the following calculation:
The number of deals for the EMEA = deals for Europe + deals for the Middle East and North Africa + deals for the Gulf Cooperation Council = 16,933+410+755 =18,098 deals.
The total value of deals for the EMEA = value for Europe + value for the Middle East and North Africa + value for the Gulf Cooperation Council = 1,129,500,000,000 + 45,000,000,000 + 75,600,000,000 = 1,250,100,000,000 or $1,250.1 billion or $1.25 trillion.
Note that these values are approximate since we were unable to find the number value of deals for Africa excluding North Africa.
Mergers and Acquisitions — EMEA
In 2018, there were 18,098 M&A deals which constituted $1.25 trillion in EMEA-targeted M&A volume. This volume is broken down by region as follows:
As of the first half of 2018, the announced M&A deals in the EMEA totaled $1.1 trillion from 8,070 deals, up 83% compared to the same period in 2017 which totaled only $590.7 billion. Among these deals, the media and entertainment sector led the marketplace with 605 deals in the first half of 2018. Other sectors were ranked as follows:
- Media and Entertainment: $185.9 billion.
- Consumer Staples: $143.3 billion.
- Energy and Power: $141.2 billion.
- Healthcare: $137.7 billion.
- Industrials: $123.2 billion.
- Telecommunications: $100.8 billion.
- Financials: $64.1 billion.
- High Technology: $45.7 billion.
- Materials: $45.2 billion.
- Real Estate: $43.2 billion.
- Retail: $28.8 billion.
- Consumer Products and Services: $22.0 billion.
Mergers and Acquisitions — Failure rates
According to a Global PMI Partners' report which analyzed 11,000 M&A transactions between 2010 and 2017, the "market cap decreased by more than 10 percent between the rumor/announcement and the closing dates" in 39% of the deals. Therefore, the value increased for only 34% of the deals. In addition, the value increased for 37.1% of deals in Western Europe while it increased for 22.6% of deals in Eastern Europe. "The study mainly deals with the Value Recognition Index (VRI), calculated on the basis of the acquirer’s Market Capitalisation (MC) and the Transaction Price (TP) paid for the target company." The index is calculated as follows:
VRI (%) = [(MC2/(MC1+TP))-1]*100
- MC1 = acquirer’s market capitalization the day prior to the rumor or announcement
- TP = transaction price paid for the target
- MC2 = market capitalization one week after the closing of the deal
According to Intra Links, the absolute size of the target (as measured by the target’s sales), the size of the acquirer (as measured by the acquirer’s sales), and the relative size of target and acquirer are the most significant predictor of the probability of deal failure. Deals involving larger targets are more likely to see their deals fail with 75-100% target sales quartiles having 15.2% of failure. Also, the size of the acquirer was a significant factor affecting the probability of deal success or failure: smaller acquirers more likely to fail with a deal failure rate of 18% - compared to the average of 16.1%. For acquisitions of private targets, the ratio of target sales to acquirer sales was the "most significant predictor of the probability of deal failure or success." Therefore, deals between larger targets relative to smaller acquirers were less likely to succeed or complete: for a ratio between 150% and 200% the failure rate was 13.5% while for a ratio more than 200% the failure rate was 8.3%.
Spin-off — EMEA
Recent examples of spin-offs in the EMEA include:
- The Danish conglomerate, AP Moller-Maersk, has spun off its oil business with the aim to concentrate on the company's container shipping business which is earning $7.5 billion in the sale
- The German companies E.ON and RWE have sold off parts of their portfolios
- "Honeywell International has announced a spin-off of its transportation systems business and homes product portfolios, both of which will be two publicly traded companies."
Spin-off — Failure rates
According to a study done by The Edge and Deloitte which analyzed spin-off industry over 15 years, 40% of spin-offs in Europe did not generate a return in the first year after the separation with an average of 18% "return a year after the transaction, outperforming parents" by 3%. Globally, parents returned only 8% and spin-offs added 22%. Lastly, the "market cap decreased by more than 10 percent between the rumor/announcement and the closing dates" in 39% of the M&A deals.