The coronavirus pandemic brought global M&A activity to a decade low, according to data analyzed by Refinitiv. Faced with financial and economic uncertainty, cash-strapped companies scrapped near-term expansion plans to fortify their balance sheets and preempt layoffs.
Only 8,272 deals worth $485. 3 billion went through in the second quarter. The tally marks a 16-year market low, and the total value represents a 55% year-over-year decline.
“It does require more courage to do a deal in this environment,” JPMorgan global M&A co-head Anu Aiyengar told Reuters. “You need a CEO with a lot of credibility with investors, and they need to be doing something very strategic.”
Some deals, like bids for WeWork and L Brands Inc's (NYSE:LB) Victoria Secret or Simon Property Group Inc's (NYSE:SPG) proposed takeover of Taubman Centers, Inc. (NYSE:TCO), collapsed during the period as the coronavirus wrecked some sectors worse than others.
“The main challenge to get deals done is that buyers have to be prepared to pay a full price while the current business performance is still well below pre-COVID-19 level,” JPMorgan Chase global co-head of M&A Dirk Albersmeier told Reuters.
Of the deals that did go through, few were initiated during the pandemic.
Where Are The Deals?
While M&A activity declined by less than 10% in Europe ($182 billion) and Asia ($150 billion), the U.S. took a bigger hit. U.S. M&A accounted for most of the global dip as activity waned 85% to just $94.3 billion. The second quarter marked the first since 2009 that the U.S. failed to top global rankings.
Europe, Africa and the Middle East saw the largest consolidations, including the $38 billion merger of Virgin Media and O2 merging and National Commercial Bank of Saudia Arabia’s $15.6 billion buyout of Samba Financial Group. International deals were limited to just a handful, including Just Eat Takeaway.com’s $7.3 billion purchase of GrubHub Inc (NYSE:GRUB).
“Doing cross-border deals requires a level of confidence and optimism that has taken a knock this year, especially when it comes to transactions across continents,” Baker & McKenzie LLP partner Nick O’Donnell told Reuters.
When Will Activity Pick Back Up?
Record debt and equity issuance suggest that companies redirected energy to raise capital amid low interest rates and other favorable market conditions.
“It was the quarter for capital market activity,” Michael Carr, global M&A co-head at Goldman Sachs, told Reuters. “Companies are making sure their balance sheets are strong and durable for what comes next.”
If the Asia-Pacific region gives any indication, “what comes next” may include domestic industry consolidation.
“There are domestic consolidation discussions underway in almost every market,” Rohit Chatterji, co-head of Asia-Pacific M&A at JPMorgan, told Reuters. “We are seeing less appetite for venturing into new markets with risky new bets and more desire to get an asset down the street that you know you can run well, and where you can take lots of costs out. That then makes the shareholders happy and it makes it easier to get financing to back the trade.”