M&A Showing Signs Of Life
We wrote last week about the rough second quarter for 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.
JPMorgan Chase & Co global co-head of M&A Dirk Albersmeier summed up the issues facing M&A by saying "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."
One sector in particular appears to be weathering the M&A drought better than the rest. Not surprisingly, the technology sector is showing relative strength as it has accounted for approximately a quarter of all M&A deals in the U.S. as of July 9, according to Dealogic.
Total deal value in the U.S. is down 67% so far this year, while the technology sector has seen a 62% decline. The number of deals across all sectors is down 22% compared to last year, while the number of technology deals has declined by just 13%.
"Technology is not like warehousing or the grocery business where you can put off things for two years or five years and still operate your core business," business professor at the University of Michigan Erik Gordon said. "You have to be offering the technology that is wanted today."
The technology sector has seen a higher acquisition rate than any other sector since 2010, according to Dealogic. With individuals now more reliant on technology more than ever, some companies may not have much of a choice other than to make acquisitions.
"What you had five years to do, now you probably have 18 months to do, and that always pushes you toward acquisitions," Gordon said. "The pencil pushers say you’re overpaying and you’re saying, 'yeah, yeah yeah, doesn’t matter. We don’t have three years to develop this, we want it now.'"
U.S. deal-flow rebounded last month after dropping once the lockdowns began in March. After seeing 138 deals in March, the number of deals fell to 79 in April and 73 in May, according to FTC filings. Last month saw the number of deals in the U.S. jump to 111.
We've already seen a handful of notable deals so far this month, including Berkshire Hathaway Energy's $9.7 billion deal for assets of Dominion Energy and Analog Devices' $21 billion deal for Maxim Integrated Products, which was reportedly negotiated during virtual meetings.
While one month doesn't make a trend, it remains to be seen if M&A activity will pick up in the months to come despite the ongoing coronavirus pandemic.
Mortgage rates hit another low. The average 30-year fixed-rate mortgage declined to a new record low of 3.19% from 3.26%, causing a jump in refinances as new mortgage applications fell. Applications to refinance a home jumped 12% last week and now stand 107% higher than the same period a year ago, according to the Mortgage Bankers Association's seasonally adjusted index. New mortgage applications fell by 6% and remain 16% higher than the same period a year ago. Total mortgage application volume rose 5.1% last week as refinance share of total mortgage activity rose to 64.2%.
Pornhub wants to help small businesses. Pornhub, which touts 130 million daily visitors, is trying to do its part in assisting small businesses affected by the coronavirus by offering $300,000 worth of free advertising. Pornhub will select 100 small businesses that will each receive 10 million impressions via ads alongside its videos through the "Big Package" contest. "Many of the businesses this contest will appeal to have never considered marketing themselves with Pornhub before, and we are hoping that this campaign will help them consider us in a new light given our reach and appeal to mass audiences," Pornhub vice president Corey Price said.
Zoom moves into hardware. Zoom has introduced an all-in-one communications system that runs its video-conferencing software for $599. The device, which is named Zoom for Home – DTEN ME, is being produced through a partnership with DTEN and will begin shipping next month. "Zoom for Home is an initiative from Zoom that allows any Zoom user to deploy a personal collaboration device for their video meetings, phone calls, interactive whiteboard annotation — all the good stuff that you want to do on Zoom, you can do with a dedicated purpose-built device," Zoom's head of Zoom Rooms Jeff Smith said.
Apple wins European tax case. Europe's second-highest court handed Apple a victory as it rejected the European Union's allegations that Apple benefited from Irish tax laws to lower its tax rate over two decades. Apple, which had a tax rate as low as 0.005% in 2014, escaped having to pay 13 billion euros in back taxes. "The General Court annuls the contested decision because the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU1," the judges said.
Walmart will require face coverings. Walmart announced shoppers in its Walmart and Sam's Club stores will be required to wear a face covering beginning on July 20. Walmart, which said about 65% of its stores are in areas where face coverings are mandated, joins the likes of Apple, Costco and Best Buy in requiring customers wear them. "While we’re certainly not the first business to require face coverings, we know this is a simple step everyone can take for their safety and the safety of others in our facilities," Walmart said.