As the global extent of the Covid-19 outbreak became apparent, M&A deals began to hit the buffers. Xerox pulled its $35 bn hostile bid for HP. US aerospace suppliers Hexcel and Woodward cancelled their $6.4 bn merger. And 1-800-Flowers.com said it couldn’t complete a deal to buy one of Bed Bath & Beyond’s business units. The seller responded by suing.
Overall, global M&A deal value fell 41 percent in the first half of 2020, compared with the same period last year, according to data from Refinitiv. Understandably, many buyers put their plans on the shelf and turned their focus inward to weather the economic storm caused by the pandemic. In 2019, deal-makers wondered whether the six-year M&A cycle was coming to an end; Covid-19 provided the answer.
Transactions continue, however, albeit at reduced levels. While big, transformative deals appear to be off the table, those with cash are in a strong position to take advantage of opportunities. Consolidation is also expected in those industries worst hit by the coronavirus.
‘With respect to M&A activity generally, we witnessed a decline in the volume of both domestic and international deals,’ says Vilena Nicolet, an associate at law firm Faegre Drinker Biddle & Reath. ‘We expected some slowing of the market this year leading into the [US] election, and the pandemic contributed to that volatility. Even with that uncertainty, however, some sectors, such as technology and healthcare, have remained strong. And we now see positive developments in the overall M&A pipeline.’
M&A activity in 2020 so far shows a marked slowdown, although there are notable differences across regions. The value of deals focused on US targets stood at $354.9 bn in the first six months of the year, a drop of 69 percent compared with the first half of 2019, says Refinitiv. Over the same period, the global share of US deal-making fell to 30 percent from 55 percent, making it the lowest level since records began in 1980.
Europe, by contrast, saw deal value rise 37 percent, boosted by capturing five of the top 10 largest deals between January and June. Those mega-deals included the $107 bn share unification of Unilever, which plans to combine its British and Dutch entities in a single London listing. Asia-Pacific deal value slipped 8 percent in the year to June, taking it to a seven-year low.
Looking at sectors, financials, industrials and technology led the way in the first six months of the year. While all three groups saw a drop in activity, they collectively accounted for 47 percent of deal value and 43 percent of deal volume globally, reports Refinitiv. Private equity deal value also fell sharply, dropping 24 percent compared with 2019. As a proportion of total M&A, however, buyouts rose to 17 percent – the highest level since 2007.
This is an extract from an article that appeared in the Fall 2020 issue of IR Magazine. To continue reading, click here to open the full digital edition of IR Magazine