• Market Crumbs

M&A Showing Signs Of Life

Image via Scott Graham on Unsplash

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.

Leftover Crumbs

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  • 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.