Global volumes are down
2020 started filled with challenges – Coronavirus crisis, oil price war, stock market crash. M&A activity followed suit and did not pick up as could be seen in former years. With very few megadeals announced so far this year, Q1 2020 recorded $690.1bn in volume and $5.7bn in revenue, a decrease of 35.5% and 16.3% year on year, respectively, and the lowest Q1 volume since 2013. Americas-targeted M&A volume saw the deepest year on year decline of 50.2%.
Cash is still King
After the decline in all-cash deals in 2019, with the lowest percentage from the total volume (52.5%) in the last decade, 2020 has started with 63.0% of announced deals so far being paid in cash only. 2019 was marked by the high number of merger of equals (46 transactions) and a high volume of transactions paid in common stock or a combination of cash and shares. Q1 2020 so far only has four announced mergers of equals, and the crash of the stock market is also unlikely to motivate sellers to accept any payment in stock. If companies are preferring payment in cash only, they are either cash rich or expecting to take advantage of the decrease in interest rates to finance via debt. Acquisition financing via loans or bonds have had a very low start, however, with only $170.5bn priced, the lowest Q1 volume for acquisition financing since 2013.
During Q1 2020, Americas-targeted M&A volume reached just $307.1bn via 2,761 deals, representing a staggering fall of 50.2% in volume in comparison to the same period of 2019. The significant fall in volume indicates the slowest start within the region since 2016 when volume stood at $302.8bn via 3,390 deals. The United States accounted for $276.5bn of all Americas-target volume, representing a share of 90% of all M&A volume within the Americas region.
Boutiques continue to steal the big-banks’ lunch
Despite the underwhelming start to the year, it has not been all bad news. Total Q1 2020 Americas M&A revenue amounted to $3.5bn, with boutique advisors accounting for $665.8m (19.3%) which is a slight increase in market share compared to the same period of 2019 when boutiques accounted for $731m (17.1%). It is yet another strong start to the year for boutique advisors who continue to take ground from bulge bracket banks in the M&A space. One of the more obvious explanations for the increased market share is that boutiques are obtaining a greater presence on large M&A deals of $5bn or higher. This however is not the case as, during Q1 2020, the amount of revenue booked by boutiques from deals valued at $5bn or more fell to its lowest market share since 2015 of 16.5%. Boutiques are gradually increasing their share of M&A revenue each year. If their presence was to improve on mega-deals, we could see the big banks lose even more ground in future.
Slow start of Asia Pacific
Asia Pacific M&A was not performing well at the start of 2020. Q1 recorded $155.6bn in volume across 2,475 deals, representing a decline of 20.7% and 18.3% in volume and deal count, respectively, in comparison to the same period of 2019. Japan-targeted M&A volume was the only in the Asia Pacific region which recorded an increase in volume with $27.7bn, up 24.3% from $22.3bn in Q1 2019. It accounted for 17.8% of all Asia Pacific M&A volume, the highest share since Q1 2013. With the help of CP Group’s $10.6bn acquisition of Tesco’s Thailand and Malaysian business announced in early March, Southeast Asian-targeted M&A volume only saw a slight decrease of 5.9% from Q1 2019.
China M&A tumbles; China inbound rises while outbound falls off a cliff
The Coronavirus outbreak, travel bans and quarantine policy in many cities and provinces in China and the disruptions in daily business operations have contributed to Chinese companies putting breaks on M&A activities in Q1 2020, hence dragging down total Asia Pacific M&A. China-targeted M&A recorded $59.6bn via 946 deals in Q1 2020, a 33.2% decrease in volume when compared with the same period in 2019 ($89.2bn via 1,057 deals), and the lowest volume since 2013. The decrease in overall volume was also attributed to the small deal scale, with only nine deals larger than $1bn announced so far, compared with 14 in Q1 2019 and 15 in Q1 2018.
Despite the impact of the virus pandemic to the market, Chinese companies still maintained its attractiveness to foreign investors. China inbound M&A reached $9.4bn via 67 deals in Q1 2020, increasing 26.8% when compared with the same period in 2019 of $7.4bn via 100 deals. In contrast, China outbound M&A drastically fell 54.6% year-on-year to $5.4bn during Q1 2020, the lowest level since 2010.
Germany leading light in EMEA M&A
EMEA M&A volume in Q1 2020 showed a moderate 11.5% decrease compared to Q1 2019 ($257.0bn) with $227.4bn via 2,638 deals. The deal volume is mostly attributed to the mega-deals from UK and Germany. The consolidation of UK insurance companies Aon plc and Willis Towers Watson plc for $36.1bn strengthened the usual top position for UK in EMEA.
Nevertheless, Germany contributed to the region’s M&A volume with four out of the top 10 EMEA deals. Germany also recorded the second highest volume in Q1 on record with $52.6bn. German-targeted mega-deals, namely the pending acquisition of Thyssenkrupp‘s elevator technology business for $18.8bn by private equity firms Advent International, Cinven Ltd, along with RAG-Stiftung, and the announced offer from US firm Thermo Fisher Scientific Inc to acquire Qiagen NV DNA and RNA technology company for $11.2bn also contributed to EMEA mega-deals Q1 volume ($77.5bn).
– Written by Dealogic M&A Research
Data source: Dealogic, as of April 1, 2020