Corporate deal-making has stalled as the impact from coronavirus takes a toll on the global economy. ... [+]
Topline: With large parts of the world shut down due to the coronavirus, global mergers and acquisitions have been put on pause with companies being forced to abandon takeover deals as they struggle with staying afloat and paying workers.
News peg: After almost half a year of tense and increasingly hostile merger negotiations, Xerox walked away from its $35 billion bid of rival printing company, HP, earlier this week saying it needs to instead focus on the impact of the coronavirus outbreak on its business.
- As much of the global economy shuts down due to widespread lockdowns and shelter-in-place orders, the M&A pipeline is slowing: Companies are facing a lack of debt financing, wild stock market swings and restricted face-to-face contact for business deals—all making it harder to seal new transactions.
- According to analysis from Dealogic, the value of M&A activity in the first quarter was significantly lower than the last quarter of 2019, down 35% globally and 39% in the U.S.
- Just $618 billion worth of deals have been completed in 2020 compared with $956 billion by this time last year, according to the data.
- The value of worldwide M&A activity fell 25% from last year, totaling just $730.5 billion in the first quarter of 2020, according to data from Refinitiv.
- In the U.S. the decline is even worse with a 50% year-over-year decrease in overall M&A value: Dealmaking for U.S. targets totaled just $256 billion during the recently ended quarter—hitting a five-year low, Refinitiv says.
- Just four of the top 10 worldwide deals announced during the quarter took place in the U.S., bringing America’s overall share of global dealmaking to 35%, down from 52% a year ago—the lowest level since 2012.
Crucial statistic: It was the worst first quarter for M&A since 2016, Refinitiv’s data shows, as the overall number of deals declined 13% from a year ago and hit a six-year low.
Crucial quote: While dealmakers started the year with a very positive outlook expecting increased activity in M&A deals, “that is now starting to change,” says Cornelia Andersson, head of M&A and Capital Raising for Refinitiv. “It’s likely that the impact of the coronavirus on M&A and capital raising is a story of a delayed effect, where we’ll see activity pushed back to the last two quarters of the year,” she predicts. However, if the ongoing public health crisis worsens, “then it’s likely that we will see a reduced volume of activity across the board.”
What to watch for: With the ongoing outbreak continuing to take a toll on stock markets, “global turmoil creates opportunities” for savvy dealmakers with capital on hand, Andersson points out. A good amount of M&A activity will likely be dominated by rescue deals and restructurings, as companies struggle to cope with the negative economic impacts from coronavirus. Private-equity firms, hedge funds and other big investors—such as Warren Buffett—who are flush with cash are reportedly circling companies in the travel, lodging and entertainment sectors that have been hard-hit by the outbreak, sources told the Wall Street Journal.
Tangent: For larger deals—those amounting to more than $10 billion—it was the worst first quarter for M&A activity since 2017, according to Refinitiv. The value of all deals greater than $10 billion totaled just $194 billion in the first three months of 2020, a shocking 53% decrease compared to a year ago. “Large M&A deals are typically the result of a series of face-to-face meetings, often over a significant period of time,” explains Andersson.
Surprising fact: While the number of U.S. deals plummeted, European mergers and acquisitions doubled in value, totaling $237.1 billion in the first quarter, Refinitiv’s data shows. That’s thanks to a handful of large deals—such as the $30 billion Aon and Willis Towers Watson merger, which closed just weeks before the coronavirus started to batter the continent’s economies.
Key background: If the coronavirus continues to weigh on economies around the world for most of 2020, it could mark an end to an historic surge in corporate deal making, according to the Wall Street Journal. Three out of the past five years were among the best on record for global M&A activity—in large part thanks to the eleven-year running bull market.
