Global dealmaking gets off to sluggish start in 2020
January marks the quietest month for M&A activity in almost 7 years
Global dealmaking has got off to its slowest start in seven years in 2020, more than halving from a year earlier as companies failed to sew up transactions on the scale of those that dominated headlines one year ago.
Companies across the globe clinched $164bn worth of mergers and acquisitions in January, after declines in dealmaking in the US and across the Asia-Pacific, according to data provider Refinitiv. January marked the quietest month for takeovers since April 2013.
The year has lacked one of the gargantuan acquisitions that came to define M&A in 2019. The two biggest takeovers clinched this year clocked in just below $8bn, a fraction of the $93.4bn acquisition of Celgene by drugmaker Bristol-Myers Squibb that was agreed in the first few days of 2019.
Even excluding that blockbuster healthcare deal, global dealmaking is still down more than 30 per cent from 2019 levels, the Refinitiv data showed. The biggest deals of the year include the $7.6bn takeover of Boeing supplier Hexcel by rival aircraft parts manufacturer Woodward, as well as the $8bn consolidation of Singapore-based property groups CapitaLand Mall Trust and CapitaLand Commercial Trust.
Geopolitical uncertainty, including US president Donald Trump’s impeachment trial, fears of far left-leaning Democratic presidential candidates, the US-China trade war and more recent fears of a global health crisis, has shaken confidence among board members and executives in blue-chip companies. Global stock markets have slid over the past week, wiping out their gains for the year amid fears over the coronavirus epidemic.
“The cumulative impact of the lack of confidence [around] high valuations, of regulatory scrutiny, of macroeconomic uncertainty and of the coronavirus . . . is people are slightly more conservative,” said Melissa Sawyer, a partner at law firm Sullivan & Cromwell. “And when you layer ‘slightly more conservative’ on a $100bn bet, it might make the answer no instead of yes.”
David Klein, a partner at law firm Kirkland & Ellis, added that deals that faced demanding reviews by competition watchdogs were “taking a lot longer to get done in this environment, which will deter some buyers”.
Bankers and lawyers across Wall Street say that companies are still evaluating scores of acquisitions, particularly given that persistent slow economic growth has pushed them for years to consider dealmaking as one tool to bolster revenues and profitability.
But the coronavirus outbreak could damp enthusiasm for dealmaking if its spread accelerates. Dusty Philip, the global co-head of mergers and acquisitions at Goldman Sachs, said that the bank’s pipeline of deals was strong and that dialogue with clients remained “very active” but he characterised the spread of the virus as a “wild card”.
“We haven't seen the groundbreaking, industry-changing transactions and that may be impacted by this uncertainty related to the election, impeachment and the virus.”
Mr Philip and others cautioned that it was too soon to draw a conclusion on the year’s activity based on a single month of announced deals. Deal announcements, after all, are not spread equally across the year. But the $164bn of takeovers agreed in January was roughly 50 per cent below the average monthly pace in both 2018 and 2019.