• Market Crumbs

M&A Plummets In The Second Quarter

Image via Drew Beamer on Unsplash

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.

Leftover Crumbs

  • Amazon remains most valuable brand. Amazon remains the most valuable brand in the world, according to consultancy Kantar's BrandZ Top 100 Most Valuable Global Brands ranking. Amazon saw its brand value jump by almost a third from last year to $415.9 billion. Apple is the second most valuable brand with a value of $352.2 billion, followed by Microsoft, which overtook Google for the third spot, with a value of $326.5 billion. "Although consumer reliance on home delivery during the pandemic stretched Amazon’s logistics capabilities, it also affirmed Amazon’s strength," Kantar said.

  • Facebook plans for audit. As advertisers continue to boycott Facebook, the company announced it will submit itself to an audit of how it manages hateful speech on its platform. Facebook will have media measurement company Media Rating Council conduct the audit. The audit will look into how Facebook protects advertisers from having their ads appear next to hateful content. Facebook said the details and timing of the audit are still being finalized.

  • Goldman Sachs pushes for mask mandate. Goldman Sachs' chief economist Jan Hatzius and his team have been researching the relationship between wearing a face mask and its effect on the spread of the coronavirus and the economy. "Our baseline estimate is that a national mandate could raise the percentage of people who wear masks by 15 (percentage points) and cut the daily growth rate of confirmed cases by 1.0 (percentage point) to 0.6%," Hatzius said. "These calculations imply that a face mask mandate could potentially substitute for lockdowns that would otherwise subtract nearly 5% from GDP."

  • AWS opens space unit. Amazon Web Services has opened a new unit called Aerospace and Satellite Solutions that will provide services for various space sectors such as rocket launches, human spaceflight support, mission control operations, space stations and satellite networks. The division will be headed by former U.S. Air Force Major General Clint Crosier, who recently oversaw the development of the U.S. Space Force.

  • Cirque du Soleil files for bankruptcy. Cirque du Soleil Entertainment Group filed for bankruptcy protection and will lay off 3,480 employees, representing 95% of its workforce. The company, which hopes to rehire them once shows can restart, signed an agreement where existing shareholders will invest $300 million and take over the company's liabilities, while government body Investissement Québec will provide $200 million in debt financing. "With zero revenues since the forced closure of all of our shows due to COVID-19, management had to act decisively to protect the company's future," CEO of Cirque du Soleil Entertainment Group Daniel Lamarre said.