Daily Management Review

Coronavirus Battered First Quarter Sees M&A Activity Dwindling


The devastating impact of the coronavirus pandemic gripping almost the entire of the world in the months of February and March has resulted in a 28 per cent drop in the global mergers and acquisitions activity for the first quarter of the current year which is the lowest year on year since 2016.
The virus pandemic added on to the already slow start to the current year for dealmakers.
In the first three months, the merger and acquisition activity in the United States dropped by half to $252 billion compared to the same period a year ago. According to Refinitiv data, the global volumes of merger and acquisition for the quarter dropped down to $698 billion compared to $964 billion that was noted in et same period a year ago.
There was a 17 per cent year on year drop in merger and acquisition activities in Asia to $142.9 billion.
However Europe was one bright spot in this scenario because of a handful of mega-deals that were closed just weeks before the coronavirus pandemic began to wreck havoc on the continent's economies. The deal volume in the continent more than doubled to $232 billion in the period.
According to analysts, it is likely that the merger and acquisition globally will be patchy at best and is likely to be comprised predominantly by rescue deals, restructurings and nationalizations because governments and central banks in all countries hit by the virus pandemic try to support their respective economies
"This crisis is unique. It is something that our generation has never witnessed before," said Luigi de Vecchi, chairman of EMEA banking capital markets advisory at Citigroup. "When stock markets tumble 30% you need to hope to renegotiate a deal if you have the contractual ability to do so. However, if you haven't reached an agreement you are likely to delay the signing until you have better visibility," he said.
The biggest deal for the quarter was in Russia where the National Wealth Fund (NWF) of the country was utilized for funding of the $39 billion acquisition of the largest lender of the country Sberbank.
$18 billion private equity-led buyout of Thyssenkrupp's elevators business and insurance broker Aon's $30 billion all-stock takeover of rival Willis Towers Watson were among the other big deals that happened during the quarter.
"We have seen the number of deals announced globally drop 43% year-over-year in the last two weeks," said Bank of America's global M&A head Patrick Ramsey. The second quarter too will continue to see the downward trend, Ramsey added.
"Once we get to the back-end of this, we will see a meaningful snap-back in activity. The degree of that snap-back will depend on the economic outlook and equity market recovery," Ramsey said.