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  • Yifan Shen

M&A activity in the COVID-19 landscape and future trends

Updated: Mar 24, 2021

Yifan Shen gives an overview of global M&A activity in the Covid-19 climate of 2020 and touches upon future trends into 2021 as vaccines are developed and political policies are put in place.

M&A deals are often a crucial form of financial transaction that sees either the merging of two companies or the acquisition of a smaller company by a larger one. This action often results in higher stock prices and shareholder value; leading to better global economic development as money becomes more liquid and business activities are more efficiently run.

However, when consumer confidence declines, so does consumption, profits, and eventually the decline of M&A deals. In 2020, it is clear to say that the pandemic has taken a toll on every country on the planet. At the start of the year, deal volumes were around the 4,000 mark which averaged to around $200bn in value (fig. 1). However when lockdowns began across the globe during the end of March and April time, deal volumes plummeted by 1,250 and deal value by $125bn between the peak and lockdown turnover within the first half of the year.

Volume of M&A deals in the first half of 2020

Fig. 1

When comparing the first half of 2020 to that of 2019, M&A activity decreased by 13%, although this could be attributed to a variety of causes from uncertainty surrounding the global economy in terms of trade tensions between the U.S. and China as well as the U.S. elections this November. However, we can see that M&A activity started increasing from May onwards as consumer confidence and thus confidence in industries and companies began to increase. Growth is seen particularly in the information technology and consumer discretionary sectors with firms such as Amazon and Microsoft benefiting the most from the impact of the pandemic as people started stockpiling their goods for working from home.

However by the third quarter (Q3), there was a 141% increase in values per deal in comparison to those of the second quarter (fig. 2). This increase even surpassed 2019’s Q3 by 32% as a series of megadeals (deals that are worth more than $5bn) totalling $456.2bn emerged. This included Uber’s acquisition of Postmates and mergers between Teladoc and Livongo. The unexpected rise in deals is seen as a global rebound although deal volumes still lagged in comparison with 6,543 deals completed in Q3 of 2020 and 9,229 in the previous year. However, this figure has been steadily decreasing over the past decade as value per deal rises. The total deal value averaged at the $3,000bn mark over the last 5 years.

Fig. 2

In the final quarter of 2020, there is an upward trend of M&A activity as volatility and uncertainty start to decrease, particularly at the results of the U.S. presidential election and the launch of the Coronavirus vaccine. From November onwards, there has been an announcement of up to $40bn worth of M&A deals worldwide resulting in this quarter being the 3rd strongest in terms of deals in 20 years.

This occurs as consumer confidence starts increasing at signs of life going back to pre-Covid conditions and firms wanting to get deals done by the end of the year.

However, it is likely that waves of Coronavirus would create further unemployment and deteriorate built up confidence therefore restricting consumer spending. This is evident as consumer confidence dropped to 96.8 on the Conference Board Consumer Confidence Index in November of 2020 as compared to 101.4 the previous month.

As markets move into 2021, the world can expect an increasing trend in M&A activity since both firms and investors are more prepared for sourcing deals, and transparency increases as uncertainty decreases. Most of these M&A deals are expected in the technology and healthcare sector. This arrives as more firms start to rely on digital transformation to innovate themselves and healthcare firms are heavily invested as more vaccines for new variants are expected to be produced in the forthcoming years. Although with Joe Biden as president, the U.S. -the largest source of M&A activity- can expect to see changes in U.S. policies surrounding tax, trade, and healthcare that can affect deal decisions. We can expect less uncertainty in 2021 and confidence to increase in all areas, but for M&A transactions to increase to pre-Covid levels, the global economy would need to improve and this would ultimately depend on how political leaders handle the post-Covid recovery.

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