The COVID-19 pandemic dragged North American M&A deals to their lowest level in more than a decade, according to Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM).
The pandemic’s impact on dealmaking in the first half of 2020 was “significant but not unexpected,” Willis Towers Watson said. According to the QDPM, North America posted the sharpest fall in M&A performance across the globe. Acquirers underperformed their regional index by -7.2 percentage points, with just 137 deals completed in the first half of 2020, down from 188 in the first half of 2019. This is the lowest number of North American deals for a six-month period since 2009, Willis Towers Watson said.
European buyers, meanwhile, performed 10.2 percentage points above their regional index in H1 based on an actual increase in deals completed. Europe posted 80 deals in H1 2020, up from 68 deals in H1 2019. This marks the first time in two years that Europe has posted three consecutive quarters of positive performance, Willis Towers Watson said. UK acquirers performed 16.9 percentage points above the index with 15 deals in the first half. Asia-Pacific dealmakers also outperformed their regional index with a reading of +3.1 percentage points and a slight drop in volume (82 deals compared to 95 in H1 2019).
“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,” said Jana Mercereau, Willis Towers Watson’s head of corporate mergers and acquisitions for Great Britain. “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.”
Additional findings of the QDPM include:
- Deals take longer. The average time to close a deal in the first six months of 2020 rose by 8% from the same period in 2019 (from 144 days to 156 days). Willis Towers Watson said this trend was likely to continue, with M&A deals being delayed or cancelled as companies attempt to wait out the worst of the COVID-19 downturn.
- Mega deals are still in play. Six mega deals (deals valued at $10 billion or more) closed in H1, compared to five deals in H1 2020.
- Industry winners: Acquirers in the energy and power (+8.2 percentage points), healthcare (+3.4) and materials (+9.8) sectors all outperformed their respective indices in the first half.
- Industry losers: High technology acquirers (-15.4 percentage points) have been hardest hit during the pandemic.
- Domestic vs. international: Domestic deals struggled with an underperformance of 2.66 percentage points. Cross-border and cross-regional deals, meanwhile, outperformed their indices in H1 by +0.3 and +6.2, respectively.
“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,” Mercereau said. “While it is not possible to forecast the pandemic’s long-term impact on M&A, more turbulence seems inevitable. 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.”