While global M&A had another strong showing in 2019, as 2020 unfolded, the global M&A market experienced its slowest first two months of a year since 2005. This article looks at various factors for the slow start as well as what we could see for the rest of the year.
- Private Equity. Distressed M&A activity is expected to increase. Frank: “There are vast amounts of capital that need to be deployed. This, coupled with the fact that there are fewer companies that are looking to the public markets as a source for liquidity or an exit, will mean that there are plenty of opportunities for private equity sponsors to spend.”
- Deal Drivers. Apart from COVID-19, several other factors will affect deal activity in 2020. Frank: “General macroeconomic factors, such as concerns about the current impending economic downturn, interest rate fluctuations, international trade agreements and tariff levels, geopolitical circumstances and specific situations, such as repatriation of certain businesses to their ‘home’ jurisdictions, can also have an impact on activity levels.”
- Targeted Sectors. Prior to the outbreak of COVID-19, deal activity was expected to be spread across several target sectors in 2020. Frank believes this will still be the case: “In Canada, these sectors would include traditional retail, cannabis, automotive, manufacturing and mining. Similarly, and as the market correction looms large, we anticipate buyers will look to acquire businesses that are naturally more likely to survive, and thrive, in an era of economic uncertainty.”
- Potential Headwinds. Coronavirus aside, the number of cross-border deals has recently decreased amid geopolitical tensions and rising protectionism in the US and elsewhere. This could see non-US buyers instead target regional opportunities closer to home. Frank: “Depending on the severity and duration of the current market correction, this could result in a short or medium-term decrease in activity followed by an upswing if there are ‘deals to be had’.”
- General Advice. For those firms willing to engage in dealmaking, the competition for assets may be strong. Mickey: “We anticipate that successful firms will be prepared to transact at the outset of the deal process having given thought to everything from the value proposition, strategic analysis, timing and execution through to integration, which in the current environment should include a consideration of the financial or operational impact of COVID-19 to the target company.”