Global M&A brought to halt

June 2020 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2020 Issue

After nearly a decade of growth, the value of global M&A activity dropped markedly in Q1 2020 as the COVID-19 crisis caused dealmakers to pause, according to Mergermarket’s ‘Global & Regional M&A Report 1Q20’ report.

Compared to Q1 2019, global activity fell by 39.1 percent to $563.7bn across 3685 transactions in Q1 2020, recording levels of activity not seen since the first half of 2013. Both the total value and number of deals are comparable to the first quarter of 2008, at the dawning of the global financial crisis, which saw 3744 transactions with an aggregate value of $592.3bn.

Though it is hard to say how long the COVID-19 crisis will last, while it does, dealmaking will be impacted by social distancing measures that limit the ability to conduct the site visits and face-to-face meetings required to complete transactions.

“In the short term, the current market volatility will further dent the confidence needed to embark on bold strategic moves,” said Beranger Guille, global editorial analytics director at Mergermarket.

Mega mergers have accounted for a significant portion of deal value and volume in recent years. In Q1 2019, eight were announced, down from 11 in Q1 2019 and 14 in Q1 2018.

By region, activity in the US declined 54.2 percent year-on-year to $228.6bn, accounting for 40.6 percent of global dealmaking. Activity was down 30.1 percent to $199.4bn in Europe, down 49.8 percent to $8.7bn in Latin America, down 90.1 percent to $9.4bn in the Middle East and Asia, and down 31.8 percent to $103.2bn in Asia-Pacific excluding Japan, which itself was down 62.7 percent to $13bn.

The global value of cross-border M&A also fell 27.6 percent year-on-year, to $191.4bn.

Not only will the COVID-19 crisis quell appetite for deals in the coming months, it will also cause cancellation of some announced acquisitions. The largest announced deal in Q1, Xerox’s $35.5bn hostile bid for HP in early March, was cancelled later that month as Xerox focused instead on its efforts to cope with the pandemic. “The current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP,” said Xerox in a statement.

European M&A looks set to record a dramatic fall in the second quarter, following a relatively active start to the year before the coronavirus pandemic hit. Driven by high-profile defensive consolidation and continued private equity investment, the continent saw a 30.2 percent increase in year-on-year activity against $153.2bn in Q1 2019.

In the US, the pandemic accelerated the pre-existing decline in M&A activity, which had dropped 40 percent by value between the first and second half of 2019, and continued into this year. In Q1 2020, deal activity fell 57 percent by value compared to Q1 2019, from 1524 deals worth $476bn to 1255 deals worth $206bn.

The private equity industry is facing a mixed outlook in the months ahead. It made a robust start to the year, with an almost identical level of activity in Q1 2020 as in Q1 2019: $120.5bn versus $120.4bn. But deploying capital and raising leverage could be a challenge for firms going forward. That said, the record level of dry powder makes it unlikely that PE activity will disappear, particularly as valuations come down and distressed assets appear on the market.

Richard Summerfield