February Capital Markets Review

Morgan Stanley Continues the Brokerage Industry Shake-Up By Acquiring E*Trade While M&A Deal Counts Decline Sharply

​A handful of large-scale M&A deals kept total spending levels afloat in February, despite declining deal count figures. During the month, there were 691 corporate M&A deals, 25% lower than January, and $123 billion in spending, which is 14% greater than the month before. Moreover, median deal size and post-valuation figures are up 21% and 35%, respectively, month over month. 

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February’s largest deal was a merger of two HR software firms, Ultimate Software Group and Kronos, both of which are held by private equity firm Hellman and Friedman. The combined company is valued at $22 billion. The retail brokerage industry continues to be shaken up, as Morgan Stanley acquired E*Trade for $13 billion during the month.

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Venture Capital Deal Counts Fall Below 1,000; The Lowest Level Since the Start of 2018

Venture capital deal counts fell to 24-month lows in February, with VC’s and startups closing only 877 deals, the only month with fewer than 1,000 deals since the start of 2018. While deal count fell 20% from January, capital investment in VC deals fell only 13%, resulting in a 24% and 63% increase in median deal size and post-valuation, respectively.
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Notable companies to receive venture funding last month include JUUL Labs, which raised $700 million in convertible debt. Toast POS, a Boston-based company, raised $400 million in 6th-round funding, and Pony.ai, a developer of autonomous driving technology, raised $462 million in 4th-round funding.

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Larger Real Estate Deals Boost Investment in Private Equity Despite Slumping Deal Counts

In February, roughly 30 private equity deals sized over $100 million, including brand names such as MGM Resorts, Victoria’s Secret, and Skydance Media, lifted invested capital up 86% from January levels to $44 billion. However, deal counts fell to 336 for the month, ultimately lifting median post-deal valuations from $201 million in January to $500 million in February.
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Many of the larger deals of the month were for infrastructure and real estate properties, including MGM Resorts’ sale of its Las Vegas resorts to The Blackstone Group (NYSE: BX) for $4.6 billion. Also, Vantage Data Centers sold for $400 million, Phoenix Tower International, a wireless infrastructure operator, sold for $1.4 billion, and Verso Corp sold two Wisconsin paper mills for $400 million.

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Economic Activity Shows Signs of Lagging as Virus Fears Diminish Consumer and Business Confidence

• The Philadelphia Federal Reserve released the results of its February Manufacturing Business Outlook Survey late in the month, which showed a dramatic decline in its Manufacturing Index. After spiking to 17 points in January, the index fell to -4.1 points for February, indicating contraction in manufacturing activity in the Third Federal Reserve District and is the first negative reading of the index since May 2016.
• Retail sales data for February showed a drop in consumer activity in the first month of coronavirus spreading throughout the US. Retail spending, including food services, fell 0.5% from January, the first negative monthly change since September. However, for the trailing twelve months through February, retail sales grew 4.3%, well above the low levels seen in 2016 and late 2018. As virus-induced restraints are placed on social activity in the US, retail spending might continue to decline in coming months, limiting economic growth.
• However, in February, the labor market remained strong, with the Labor Department revising its January estimate for jobs added to 273,000, the same amount of jobs added for February, bringing the trailing three-month average to a strong 248,000. The unemployment rate fell back to 3.5%, while annualized wage growth remained near the 3% level. The financial services sector added 26,000 jobs, more than twice what it added in either of the previous two surveys, and manufacturing added 15,000 jobs, a significant gain compared to the 20,000 jobs lost in the sector in January.