Deals Rebounded in Second Half Despite Coronavirus

M&A activity has seen a real surge in the second half of this year. The surge is remarkable after almost a dead stop in deals during the early stages of the coronavirus crisis.

Mergers went into a holding patterns in the first half of this year. The pandemic made businesses across the country close and wreaked havoc with the U.S. stock market.

However, M&A quickly picked up steam again in the third quarter.

Barron’s reports that from July 1st until December 24th, there have been 3,656 U.S. transactions announced, totaling $1.1 trillion. Barron’s observed that three-quarters of the deals in 2020 took place during the second half of the year.

“We expected a rebound in the second half, but the degree of the rebound has surprised us in terms of the strength,” said Patrick Ramsey, head of global M&A at Bank of America told Barron’s.

What Type of Deals Did the Recovery Include?

Dealogic found that large deals—those with a value of at least $10 billion—were at the forefront of this second-half recovery this year. As of December 18th, there were a total of 38 of those transactions, with a total value of almost $824 billion.

All of this year’s five largest global mergers happened in the second half of the year. 2020’s biggest deal, China Oil & Gas Pipeline Network’s $49 billion acquisition of PetroChina was announced on July 23rd. Under the deal, PipeChina (formally known as China Oil and Gas Pipeline Network) assumed oil and gas pipelines and storage facilities from state-owned energy giants PetroChina and Sinopec, in return for cash and equity in the pipeline company. The new company will take on the pipelines, storage facilities and natural gas receiving terminals operated by China National Petroleum Corporation, China Petroleum and Chemical Corp (Sinopec Group), and China National Offshore Oil Company.

The second-biggest transaction was S&P Global’s acquisition of London-based IHS Markit for $43 billion. IHS Markit’s CEO Lance Uggla told employees that the deal had been in the works for several months. The move emphasizes the increasing importance of big data in financial markets governed by information-hungry trading algorithms. IHS Markit was founded in 2016 when IHS, whose businesses ranged from data on automotive and technology industries to publishing Jane’s Defence Weekly, bought Markit for about $6 billion.

Deals AstraZeneca
Image credit: AstraZeneca

Pharmaceutical Deals

And on December 16th, AstraZeneca announced its plan to acquire Alexion Pharmaceuticals for $40 billion. The deal was the biggest U.S. merger and the fourth largest deal globally. Moreover, it’s the biggest deal in the company’s history and will be the largest acquisition in pharmaceuticals since AbbVie acquired Allergan for more than $63 billion in 2019. The announcement comes after speculation that AstraZeneca was seeking to make a large acquisition following its higher share price. Speculation has increased by its development of a vaccine for COVID-19.

The three biggest U.S. mergers—AstraZeneca buying Alexion, Advanced Micro Devices’s $35.7 billion acquisition of Xilinx, and’s $28.3 purchase of Slack Technologies, all happened in the last quarter of 2020.

Technology emerged as the top sector for U.S. mergers in 2020. The sector has seen about 3,000 deals valued at $443.7 billion. Healthcare was a distant second, with $262 billion worth of deals across 1,121 transactions, according to information from Dealogic.

What is a SPAC?

PwC defines special purpose acquisition companies (SPACs) as a preferred way for many experienced management teams and sponsors to take companies public. A SPAC raises capital with an initial public offering (IPO) to acquire an existing operating company.

Then an operating company can merge with the publicly traded SPAC and become a listed company rather than executing its own IPO. Alternatively, the publicly traded SPAC can acquire an operating company with the same result.

But for the entire year, M&A activity declined. Globally, the number of deals decreased roughly 15% compared to 2019. The total value of deals fell roughly 11%. Dealogic recorded 37,019 global transactions in 2020, adding up to $3.5 trillion as of December 24th. This decline was sharper in the U.S., where Dealogic recorded 7,789 U.S. announced mergers, adding up to nearly $1.5 trillion. Dealogic said that this represents a 22% decline in both the number of deals and their valuations versus 2019.

Private Equity Proves The Exception To The Rule

PE is one sector that failed to meet expectations this year.

Observers expected private-equity firms to go on a shopping spree during the coronavirus pandemic to scoop up companies. Despite the fact that the pandemic did cause some companies to seek out emergency funding, the rate of the rebound in markets limited the opportunity of private-equity firms to locate deals. After a sharp slide in March, the S&P 500 returned to its pre-pandemic levels by August.

Buyout activity also dropped in 2020, with the number of U.S. PE deals declining almost 25% to 898 deals totaling $358.5 billion. Dealogic found this to be a near-15% fall in value from last year. Nonetheless, observers anticipate private equity to be looking for deals in 2021. Likewise, they expect tech and health-care companies to remain dominant in M&A in next year. Experts say that blank-check firms also will remain a force.

“We expect to see continued pick up in SPAC M&A activity, with around 200 SPACs possessing over $400 billion of acquisition capacity going into 2021,” said Bank of America’s Ramsey.