Deal advisors said the chief executives were reluctant to explore deals without more certainty about their companies ’financial prospects. Instead, they took advantage of favorable financing terms to raise capital by selling stocks and borrowing at low interest rates, which pushed stock and bond issuance rates to record levels.
“It was a chapter in the capital market activity. Companies want to make sure their balance sheets are strong and able to stay in the face of what comes next,” said Michael Carr, co-chair of Global Goldman Sachs Group on Mergers and Acquisitions.
Total global mergers and acquisitions totaled $ 485.3 billion in the second quarter, down 55 percent from the same period last year, the lowest level since the third quarter of 2009, according to Refinitiv data. This was based on 8,272 transactions, the lowest quarterly figure since the third quarter of 2004.
The United States led the decline as mergers and acquisitions fell 85 percent from previous year levels to $ 94.3 billion, with the number of Corona virus infections in America increasing. It is the first time since the third quarter of 2009 that the United States did not top the rankings.
Europe and Asia witnessed a more modest decrease, from less than 10% to $ 182 billion and $ 150 billion, respectively.
Deal makers said the economic uncertainty created by the epidemic had reduced the ability of many companies to start and successfully complete merger and acquisition negotiations.
The main challenge
Dirk Albersmeier, co-president of JP, said: Morgan Chase Mergers and Acquisitions Affairs «The main challenge for completing deals is that buyers must be prepared to pay the full price while the current business performance is still far below the Covid-19 level.
And the largest deals for the current quarter were in Europe, the Middle East and Africa.
Liberty Global and Telefonica agreed last month to merge their British activities, Virgin Media and O2, into a $ 38 billion deal that would boost the mobile and broadband (broadband) sectors.
The National Commercial Bank, the largest bank in Saudi Arabia, said last week that it would buy Samba Financial Group for $ 15.6 billion.
“Many of the deals you see now are between companies that already know each other or were talking before the epidemic,” said Andrew Bidnar, co-chair of investment bank Perella Weinberg Partners.
“Conducting cross-border deals requires a level of confidence and optimism, which has been hit hard this year, especially when it comes to transactions across continents,” said Nick O’Donnell, partner at law firm Baker & McKenzie.
Even with some deals announced, other deals have yet to be signed.
Simon Property Group, the largest operator of major shopping centers in the United States, announced this month the end of a $ 3.6 billion deal to buy Topman Centers, citing losses to the retail sector during the outbreak of the Corona virus.
And last month, private equity firm Sycamore Partners completed a $ 525 million deal to buy underwear brand Victoria’s Secret from L.A. Brands, while the Japanese technology group SoftBank, has canceled its approval to fund a tender offer valued at $ 3 billion for additional shares in WeWork.
“It takes a lot of courage to make a deal in this environment,” said Anu Aiyingar, co-chairman of JPMorgan Global Mergers and Acquisitions. “You need a CEO who has a lot of credibility with the investors who will have to make a very strategic (decision).”
Some dealmakers say they see a gradual recovery in mergers and acquisitions as companies adjust to the reality of the post-Corona virus.
“We are now seeing a lot of customers coming to dialogue … in the past three or four weeks,” said Dusty Philip, associate global head of mergers and acquisitions at Goldman Sachs.
He added, “Many of our clients are starting to think big and outside the box and ask themselves what has changed and how can I adjust my strategic priorities to reflect the impact of the epidemic that we are all experiencing?”
Companies and their advisors work to accompany negotiation and conduct digital checks.
“Almost all administrative presentations and expert sessions are done … via videoconference,” said Patrick Ramsay, head of mergers and acquisitions at Bank of America. This applies to most board meetings. We are also seeing companies hire drones … instead of site visits. ”
Deal makers said that while many companies were struggling to regain their stature, some had benefited from advances in technology innovation and were ready to emerge from the stronger deflation and were willing to pursue acquisitions.
“The companies that survived this crisis will be largely those companies that have a balance sheet and strong cash flow that puts them in a position to complete the merger,” said Cary Cuchman, co-head of global mergers and acquisitions at Citigroup.