As the world struggled to contain and understand the full impact of the coronavirus (COVID-19) pandemic in the first quarter, the main economic impact (see our summary here) did not manifest itself until the second half of March. It is unsurprising, given the sudden stop, that merger and acquisition (M&A) activity echoed general economic trends, particularly in light of the uncertainty surrounding how long restrictive measures would remain in place and whether there would be a “V-shaped” recovery.
Estimates of the aggregate value of M&A deals showed initial declines of greater than 30% during the quarter. Data provider Refinitiv estimates that US M&A value may have halved during the quarter, and Dealogic estimates a similar figure for volume. The final figures may improve slightly over time due to lags in reporting. In addition to volumes being down, valuations (page 7) also decreased during the quarter but were still above the average of the prior ten years.
With isolation measures largely persisting through mid-May, figures for second quarter M&A will undoubtedly be lower than the first quarter. Our preliminary second quarter figures on page 6 of the report show the initial trends we are seeing.
While M&A volume has declined, activity is far from completely stopped. Strong companies in defensible industries are still in demand. This is evident with pharmaceuticals, biotech, technology supporting remote workforces, essential-goods retail, and others. While current uncertainty is causing companies to conserve cash, balance sheets were generally strong heading into the pandemic, and private equity funds have record dry powder reserved for acquisitions. Corporations will begin to make acquisitions to extend their products and services, streamline operations, and gain other competitive advantages. As the most restrictive social distancing measures are lifted, we expect to see a healthy uptick in M&A activity.
A copy of the full report is available here. Contact us for more specific details on particular industries.