A wave of big deals in recent weeks has driven global mergers and acquisitions to $ 3.6 billion in 2020, which represents an extraordinary rebound in buyout activity in the second half of the year.
Total deal value for 2020 is down 5% from 2019, according to data from Refinitiv, but marks a dramatic recovery from the first half of the year when the spread of Covid-19 brought trading to a halt.
Companies have closed more than $ 2.3 billion in deals since the start of July, an 88% increase from the first half of the year, according to Refinitiv. Activity in each of the third and fourth quarters of this year topped $ 1 billion, marking only the second time since 2008 that transactions have exceeded that level in consecutive quarters.
“It’s been a year of two halves,” said Piers Prichard Jones, partner at business law firm Freshfields. “We, like everyone else, saw the first half being very impacted at first by the threats of the virus then by the arrival of the virus then by the uncertainty which brought about. From the start of the third quarter, you saw a level of confidence that caused people to become more pragmatic in closing deals. ”
Having said earlier that he “didn’t really see an M&A environment,” Salesforce GM Marc Benioff this month agreed to buy Workplace chat app Slack in a $ 27.7 billion buyout.
“I think when I look back I don’t think I could have ever imagined any acquisitions happening this year. We are in this pandemic. . . And all of a sudden Bret and Stewart get together and say yes we can do it, ”said Benioff, referring to Salesforce president Bret Taylor and Slack CEO Stewart Butterfield.
Traders said business improved in the second half of the year thanks to the promise of vaccines to treat the coronavirus and political certainty after Joe Biden’s U.S. election.
Anu Aiyengar, Co-Director of Global Mergers and Acquisitions at JPMorgan Chase, said: “Outside of Covid, it’s a good environment to make deals. Stock markets are high, interest rates low, and equity investors are happy to pay for growth. “
Peter Orszag, managing director of Lazard’s financial advisory business, said: “If you told me we would be facing a pandemic and global mergers and acquisitions would always be flattening compared to the last year I would have been amazed. According to Refinitiv’s estimates, the costs of entering into global deals fell 5% to $ 30.4 billion.
Among the most important transactions of the last three months of the year is S&P Global Supply of $ 44 billion to buy IHS Markit Analysis Group, AMD’s $ 35 billion acquisition rival US chipmaker Xilinx and UK pharmaceutical group AstraZeneca $ 39 billion takeover of the American biotechnology group Alexion.
In each of these transactions, the acquirer used their own shares as the primary currency, profiting from the surging stock markets. S&P Global and AMD, led by Managing Director Lisa Su (pictured above), pay for their deals entirely with their own shares, while AstraZeneca pays about two-thirds of their deal with their stocks and Salesforce pays a little more half. of his Slack agreement in his own actions.
Stephan Feldgoise, co-director of global mergers and acquisitions at Goldman Sachs, said several deals were also driven by companies’ desire to diversify their portfolios. “The balance has shifted to where companies now see increased and diverse scale and a larger balance sheet to be as important as focusing on growth opportunities,” he said.
Despite an increase in the total number of transactions in the United States, the total value of transactions in the region fell 21 percent to $ 1.4 billion for the entire year. In contrast, activity climbed 34% to $ 989 billion in Europe and 15% to $ 872 billion in Asia.
“There was a reason we saw so many deals this year,” said Matthieu Pigasse, Paris partner of Centerview Partners. “There are very large companies that are rich in cash. . . who are looking for complementary solutions or target companies that have been affected by the crisis. “
Advisers said they expected deals in Europe to remain at high levels for the first few months of next year, in part due to a weaker rally in equities in the region.
“We are seeing some buyers using their stocks in cross-border transactions and taking advantage of the growing gap between the price / earnings ratios of US companies compared to European companies,” said Cathal Deasy, head of European mergers and acquisitions at Credit Suisse. “We expect to see a continuation of this trend for US companies to use stocks in buy deals of European companies.”
Bankers said they expected to see large companies, such as Dutch conglomerate Philips and Anglo-Dutch consumer goods group Unilever, to exclude parts of their businesses in the first half of 2021, this which will also increase activity.
However, they added that if public markets continue to drive up the value of some assets, it will become more difficult for bidders to compete with stock market investors.
“There is a perception that public markets are willing to pay outrageously high multiples, especially for growth assets, which means that every selling process is a two-track one with an IPO option,” he said. said Alison Harding-Jones, head of mergers and acquisitions for Europe, Middle East and Africa at Citigroup. “The prices are most definitely inflated and there is so much money pumped into the markets that there is a feeling it will continue.”