Merger Activity Picked Up Despite the Covid-19 Pandemic

A backlog of mergers and acquisitions were put on hold as a result of the Covid-19 pandemic. Now, however, the floodgates are open and an outpouring of M&A activity is set to hit the capital markets through the rest of 2020.

M&A research firm Mergermarket recently released data on the M&A space showing signs of heightened activity despite a challenging 2020:

  • Large deals, those with disclosed values of USD $5 billion or more, skyrocketed 256% quarter over quarter, reaching 32 transactions totaling USD 451.3 billion$ in 3Q20. Not since 4Q15 have so many large deals been announced. The two largest deals included PetroChina selling off major pipeline assets to PipeChina for USD 49.1bn and the acquisition of NTT DoCoMo by Nippon Telegraph and Telephone Corporation for USD $40.4 billion.
  • Despite the valiant effort, the increase in large deals could not erase a difficult first half. Year-to-date, 2020 has seen USD $1.86 trillion in deals compared to USD $2.58 trillion for the same period in 2019, representing a 27.9% decline.
  • The first half was marked by a large number of lapsed and cancelled deals because of the uncertainty over COVID-19 as well as financial distress that led to a lack of overall activity and lower numbers
  • The total number of M&A deals continued their falling trendline. The third quarter saw just 3,494 total deals, representing a drop of 31.6% compared to 3Q19 (5,106 deals). Year-to -date, total deal volumes are lower by 26.7% in 2020 compared to 2019, with 11,214 total deals versus 15,306 last year.
  • As the pandemic accelerated the uptake and rollout of online remote services in response to the pandemic, technology media and telecom (TMT) was one of the busier sectors in 2Q20 globally. In the third quarter, it fully emerged as the most active for deals with 760 deals totaling USD 301.2bn. That total could reach even higher with the possible divestiture of TikTok by ByteDance, which could be worth as much as USD 60bn.
  • Between Q1 and Q2, overall US M&A declined 65% by value and roughly 45% by number of deals. However, the market rebounded more than 400% by value between the second and third quarter, with 1036 deals announced worth USD 402bn.
  • The total deal value increased 38% over the same period in 2019, which recorded USD 291bn in deal value. Deal count in 3Q20 declined 37% with 581 fewer deals compared to the same period last year. Despite the apparent rebound, year-to-date activity remains down 46% by value over 30% with 1,353 fewer deals. Year to date there has been 3,412 deals worth USD 696bn compared to 4,765 deals worth USD 1.285tn announced in 1Q-3Q19.

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One ETF to watch closely is the IQ Merger Arbitrage ETF (NYSEArca: MNA). MNA seeks investment results that correspond generally to the price and yield performance of its underlying index, the IQ Merger Arbitrage Index, which seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions, and other buyout-related transactions.

For more market trends, visit ETF Trends.