Global M&A activity tumbled to lowest level due to COVID-19 outbreak: WTW

Global mergers and acquisitions (M&A) activity tumbled to its lowest level in more than a decade due to the impact of the COVID-19 pandemic, with North America witnessing the sharpest decline and the lowest number of deals for a six-month period since 2009.

According to Willis Towers Watson, acquirers in North America underperformed their regional index by -7.2 percentage points with just 137 deals completed in the first half of 2020, compared with 188 deals in H1 2019.

In contrast, Europe recorded three consecutive quarters of positive performance for the first time in two years and completed more deals in H1 2020 than the same period in 2019. Buyers performed +10.2 percentage points above their regional index in H1 based on an actual increase in deals completed - 80 deals compared with 68 deals in H1 2019.

Meanwhile, UK acquirers performed +16.9 percentage points above the index with 15 deals in the first half of 2020.

Asia-Pacific dealmakers also fared better compared to their regional index in the first half of 2020, albeit with a more modest positive performance of +3.1 percentage points and based on a slight dip in volume - 82 deals compared with 95 completed in H1 2019).

WTW report also noted that the average time to close a deal in the first six months of 2020 has increased by 8 percent compared to the same period in 2019. This trend is likely to endure, expects Willis Towers Watson, with M&A deals continuing to be delayed or cancelled as companies try to wait out the worst of the downturn.

Six mega deals, valued at $10bn+, closed in H1 2020 compared with five deals in H1 2019. Acquirers in the energy and power (+8.2pp), Healthcare (+3.4pp) and Materials (+9.8pp) sectors all outperformed their respective indices in H1 2020.

The report found that high technology (-15.4pp) acquirers have been hit hardest during the COVID-19 outbreak.

Jana Mercereau, head of corporate M&A for Great Britain, said: “Global M&A activity tumbled to its lowest level in more than a decade in the wake of the COVID-19 outbreak, with most of this decline driven by North America. Economic uncertainty caused by the pandemic seems to have had a far greater negative impact on the ability of US companies to initiate and successfully complete M&A negotiations.”

“Before the severe disruption of COVID-19, dealmakers already faced uncertainty, including trade disputes, the threat of global recession, the rise of shareholder activism and a US presidential election on the horizon, making the deal performance and volume in some markets even more impressive,” said Mercereau. “While it is not possible to forecast the pandemic’s long-term impact on M&A, more turbulence seems inevitable."

Mercereau added: “What previous crises do tell us is that there will be opportunities to make deals, underpinned by vast amounts of capital still waiting to be deployed. Activity, partly driven by distressed M&A and non-core divestitures at bargain prices, will become more selective, deals will take longer and acquirers will need to be prepared for the duration and depth of their due diligence to increase, even as COVID-19 subsides.”