M&A Plummets In The Second Quarter
As a result of the coronavirus outbreak and the uncertainty that it has created, companies have largely gone into preservation mode.
The number of companies laying off employees, cutting dividends, pausing share buybacks or taking other measures to reduce costs are too long to list.
Not surprisingly, one of the hardest hit areas appears to be global mergers and acquisitions.
According to Refinitiv, global M&A totaled $485.3 billion in the second quarter, a decline of 55% from the same period a year earlier. The total marks the lowest dollar amount for M&A activity since the third quarter of 2009. Even worse, the 8,272 deals in the second quarter marked the lowest quarterly deal volume since the third quarter of 2004.
The U.S. accounted for most of the decline, where M&A fell 85% from the same period a year earlier to $94.3 billion. This was the first time since the third quarter of 2009 that the U.S. did not lead in global M&A. M&A activity in Europe and Asia declined by less than 10% from the same period a year earlier to $182 billion and $150 billion, respectively.
"The main challenge to get deals done is that buyers have to be prepared to pay a full price while the current business performance is still well below pre-COVID-19 level," JPMorgan Chase & Co global co-head of M&A Dirk Albersmeier said.
This sentiment appears to capture exactly why Warren Buffett continues to sit on his hands rather than put Berkshire Hathaway's record $137 billion in cash to work. Buffett, who has received plenty of criticism lately, said in May "we don’t see anything that attractive to do."
For those that are looking to make deals, the due diligence process has been upended by the coronavirus.
"Nearly all of the management presentations and expert sessions - from a diligence standpoint - are being done by video conference. That is true for most board meetings. We are also seeing companies employ drones and (camera crews) filming in place of site visits for due diligence," Bank of America head of global M&A Patrick Ramsey said.
With valuations continuing to sit near record highs, it will be interesting to keep an eye on M&A activity in the quarters to come to see if business leaders start to make deals or continue to focus on maintaining a strong balance sheet.
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