Coronavirus Outbreak Puts Massive Strain on Global Merger and Acquisition

The COVID-19 pandemic is gearing up a severe impact on businesses across the world in a short period of time as it has caused organizations to shutter down their operations. Even, millions of workers have been laid off or furloughed on a massive scale, consumer spending has been reduced significantly, global supply chains have been disrupted, and demand for oil and other energy sources has nosedived that cause the decline in global oil prices.

The pandemic is also having an enormous impact on global merger and acquisition practices as no M&A deal worth over US$1 billion was announced worldwide last week. This is the first time since September 2004, according to a report from Refinitiv, a global provider of financial market data and infrastructure. Considering the report, the global merger activity so far this year is tumbled 33 percent, compared to last year and at US$762.6 billion is the lowest amount so far for deal-making since 2013. Moreover, the number of deals also fell 20 percent year-on-year.

In the 2008 financial crisis, uncertainties in the business and capital markets have already contributed to buyers delaying or cutting back on their acquisition plans. However, in the current crisis, the impact is not just on the financial systems, valuation of sellers, and consumers to get deals done, but also on a large number of factors affecting M&A deals.

Companies have been abandoning announced transactions in the midst of changed deal conditions and high levels of uncertainty. For instance, Alimentation Couche-Tard Inc in Canada recently said it would shelve its US$5.6 billion buyout of petrol station operator Caltex Australia Ltd due to the plummeting demand of fuel.

Additionally, regulators across the world have also toughened rules for foreign investments to safeguard national assets. In this context, India last week stepped up with new rules, saying that investments from neighbouring countries will require government approval in a move to curb opportunistic takeovers or acquisitions.

In the United States, the pace of deal-making among American companies had already begun to slow before the pandemic forced officials to shut down the most-affected areas of the country. According to reports, Morgan Stanley’s US$13 billion all-stock takeover of brokerage ETrade and Thermo Fisher’s US$11.5 billion acquisition of Dutch diagnostics group Qiagen were among the few megadeals in the first quarter of 2020. Conversely, the overall M&A activity in the US plunged 51 percent to US$253 billion for the quarter, compared with the same period last year.

Conversely, European volumes climbed 51 percent to US$232 billion due to a hoist in private equity acquisitions and the all-stock takeover of insurance broker Willis Towers Watson by its rival Aon. But most of the European activity took place before the pandemic shifted focus among corporations. Companies whose M&A transactions are pending also abandoning significant deals due to the coronavirus outbreak.