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Global M&A activity fell back from lows of nearly a decade in 2020, tackling the Covid-19 pandemic with a series of large deals in the second half of the year that negotiators expect to continue.
Transaction volumes are now down about 6% over the year to $ 3.5 trillion, according to data compiled by Bloomberg.
Still, the fact that around two-thirds of them were signed since early July has advisers talking of a dramatic comeback, after the first half of 2020 froze mergers and acquisitions and curtailed deal activity in America. of the North more than 50%.
The way the transactions were conducted also changed, as bidders flew drones to carry out due diligence and the head of a UK pharmaceutical giant signed his biggest deal while quarantined in a hotel room in Australia.
Globe-trotting bankers have moved on to days of uninterrupted video calling, either from home or from nearly empty offices.
Advisers interviewed by Bloomberg News described 2020 as a tale of two very different halves.
“We saw a sharp drop in M&A activity after the outbreak of the pandemic, but then a very strong recovery in the second half of the year,” said Berthold Fuerst, Co-Head of Investment Banking Coverage and Advisory Europe, Middle East and Africa at Deutsche Bank AG.
As the pandemic shut down cities in the first quarter, companies around the world rushed to move their businesses online and organize new remote workforces while plugging the holes in their supply chains.
The chaos left CEOs too busy to make acquisitions, and trading got off to the slowest start since 2013.
Rather than opportunistic mergers, most of the deals that were struck helped companies stay afloat, particularly the travel, hospitality and entertainment businesses affected by the closures.
Airlines sought federal help while others secured private equity investments.
The situation began to stabilize when companies realized they could operate in the new environment, said Scott Barshay, chairman of the corporate department at law firm Paul Weiss Rifkind Wharton & Garrison.
“Suddenly, you could see a real shift in the way we think about what the world will be like after a pandemic and how we put ourselves in the best position to be successful after a pandemic.” Barshay said in an interview.
“It seemed to come from companies in all sectors at once.”
That renewed desire to make deals converged with the run-up to the US election, as companies rushed to run ads to avoid market volatility around the contentious vote.
Joe Biden’s victory, combined with a divided Congress unlikely to push for major tax changes, was seen as a stable result. Along with positive news about vaccines, that set the stage for the floodgates of mergers and acquisitions to open.
In the fourth quarter alone, more than $ 1.3 trillion in deals have been announced.
S&P Global Inc’s total acquisition of IHS Markit Ltd for $ 39 billion came on the heels of mega technology deals, including the $ 35 billion purchase of chipmaker Advanced Micro Devices Inc from Xilinx Inc and the $ 35 billion deal. Salesforce.com Inc to buy Slack Technologies Inc. for $ 27.7 billion including debt.
“People became more optimistic and confident,” said Stephan Feldgoise, co-head of global mergers and acquisitions at Goldman Sachs Group Inc, in an interview.
“For those who did not want to use shares in a transaction, they were able to obtain commitments and liquidity from the banks, which also allowed them to do business in cash.”
Goldman Sachs was the busiest advisor this year, working on transactions worth $ 814.5 billion, followed by Morgan Stanley and JPMorgan Chase & Co., according to data compiled by Bloomberg.
The coronavirus also revealed vulnerabilities that pushed CEOs to make changes now, rather than in five or 10 years as they were planning, said Cary Kochman, co-head of global mergers and acquisitions at Citigroup Inc.
“What this impact has done is force the rapid implementation of these strategic plans,” Kochman said.
Utility work
Beyond North America, Europe was a bright place for deals compared to recent years. Deals involving European companies have risen about 6% this year to $ 1.2 trillion, according to data compiled by Bloomberg.
Maja Torun, director of investment banking in France at JPMorgan, said that companies affected by Covid could become more active in divesting assets next year.
“We expect a very active M&A in 2021 driven by both Covid winners and Covid losers,” he said. “Healthcare or technology players in Europe will continue to consolidate while benefiting from very favorable equity prices as a bargaining chip.”
‘Huge surge’
Asia Pacific was the strongest region in the second half: transaction volumes increased 13% for the year to $ 1.3 trillion.
The region could extend its recovery until 2021 as it heads toward stronger economic growth led by China. Japanese companies could also emerge as active buyers globally again, according to Rohit Chatterji, JPMorgan’s co-head of M&A in Asia Pacific.
“We are likely to see an increase in deals, including outbound transactions amid a more stable external environment,” he said.
Despite the challenges of 2020, most of the factors that drove the deal boom of recent years have not gone away. Companies have access to easy financing and buying companies have a record amount of dry powder. The rapid rise in special-purpose acquisition companies has also created a new class of public companies that could be the next consolidators.
“We’ve had this huge increase going into the year from a good but weak market, and now we anticipate 2021 to overtake 2019,” said Citigroup’s Kochman.
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