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Cross-Border Mergers and Acquisitions Deals Affected by the Pandemic

Posted: Friday, November 20th, 2020

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The coronavirus pandemic has hit the world’s economy like never before. For all the world’s economy to experience recessionary conditions simultaneously, it is something truly unique. Cross-border mergers and acquisitions were on a declining path even before the pandemic. However, the sector took a big hit as the COVID-19 outbreak reached the entire world.

November brought with it the much-needed hope. Pharmaceutical companies around the world published promising COVID-19 vaccine results. As such, the end of the health crisis is in sight, albeit there is still a long way to go.

Nevertheless, the world got what it needed – hope. And so, companies with plans of expanding their businesses suddenly can find more attractive targets. After all, the pandemic slashed the valuation of many businesses – and still does.

Mergers and Acquisitions

Mergers and Acquisitions Declined in 2019

The mergers and acquisitions sector often represents a benchmark for economic growth. The more activity in the sector, the better. That is especially true in cross-border deals.

Unfortunately, the sector declined by 40% in 2019 when compared to 2018. Brexit, for instance, halved European mergers and acquisitions sales to $190 billion. Also, the sluggish European growth did not help either.

In the United States, isolationism and protectionism were the name of the game under Trump’s presidency. As such, corporations lived with the spectrum of an ever-changing environment as trade wars and tariffs were the norms. Because of that, the U.S. mergers and acquisitions sector’s activity also declined.

M&A Deals Canceled by the Pandemic

The financial world tends to focus on huge deals – the ones where the names of the companies involved are known to the public. For example, the LVMH-Tiffany merger. Faced with the pandemic, the LVMH stepped back, to Tiffany’s surprise. However, this is just an example of high-profile mergers and acquisitions that have difficulty succeeding. Some other ones flow under the radar regularly.

For example, HOT Telecommunication Systems (Luxembourg) withdrew its tender offer for Partner Communications (Israel) for $900 million. Or, Melco Resorts & Entertainment (Hong Kong,  China) withdrew dropped investment plans in Crown Resorts (Australia), a transaction worth roughly $500 million. And the list can go on with other examples.

The bottom line here is that the decline in the M&A activity did not start with the pandemic – it continued with it. However, things have changed for the better lately.

First, the vaccine news opens new deals on the horizon. Second, there is a new administration coming up in Washington. Third, the Brexit transition period comes to an end by the time December 2020 passes. Fourth, central banks injected and continue to inject money into the financial system. More precisely, cheap money.

Never in history had corporations access to so much cheap capital. For sure, they will not hesitate to use it.

Already we see some interesting maneuvers. BBVA, a Spanish bank, sold its U.S.- based operations at 1.3x price-to-book value. Shortly after, it announced a merger with another Spanish bank, Sabadell.

Mergers and acquisitions rise or decline reflect the economy’s growth potential. Also, they hint at reverses in the business cycle.

Have we already seen the bottom?

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