M&A Under Lockdown | The Corona Correction | Refinitiv
Welcome to the Corona Correction Series in association with Refinitiv, I'm your host Roger Hirst. A few weeks ago we spoke to Refinitiv's Cornelia Anderson about the trends in M&A. Whilst there were some opportunities for the nimble dealmakers, the lack of face to face negotiation was expected to put the brakes on this sector. I asked Refinitiv's Director of Deals Intelligence Matt Toole, for an update to see if there are any signs of companies taking advantage of the dislocations that have appeared in order to expand their influence. This has been a pretty significant time in the world of dealmaking over the past number of weeks as we've seen levels of M&A, equity capital markets and debt capital markets fall to near record lows or at least recent modern history lows. The M&A environment for the last seven years has been significantly up. The dealmaking cycle has been unprecedented post-financial crisis, and so the amount of activity that we've seen over the past decade has seen consolidation in many different sectors. Over the past month, we've seen the number of deals as well as the value of deals fall very dramatically. Last week actually was the first week since 2004 that we didn't see an M&A transaction over one billion dollars. And so, you know, a 16 year low for some of these dealmaking superlatives will have big impacts on companies and certainly banks and advisory firms that that work to help finance these companies as well as advise on M&A. I think it's too soon to tell what sectors might have the best kind of opportunity coming out of this crisis. You know, I think certainly you're going to see consumer and retail companies really trying to kind of refigure how they restart it and come back. Obviously, the media landscape as well as travel, leisure, hotels, the airline industry, I think there will be lots of ways for sectors to potentially be a reimagining, and then also, you know, prices have gotten pretty expensive over the last number of years, and so there could be some major bargains for companies looking to diversify, you know, in a peripheral industry or within their supply chain or to bring some geographic diversity. There's always been talk about, you know, the big tech companies having a ton of cash and potentially looking to move into other industries. And so if valuations decline a bit if stock prices are are a bit low and and some of the big companies like Apple and Alphabet and Amazon and Facebook and Microsoft have all this cash. Do they potentially move into new and adjacent spaces or bring some of their some of their supply chain into into their actual company as opposed to using some of the global supply chain networks they've built over over the last number of years? The interplay between the large, full scale investment bank and the independent boutique advisory has been really a hallmark of the last 10 years. Many of these boutique investment firms came out of the financial crisis when dealmakers left some of the bigger firms or decided to branch out, branch out on their own. These companies have built up a fantastic business of advising companies about how to merge and so a very sharp decline in the level of M&A activity could severely impact their business. Some companies are focused on one or two particular sectors like energy or tech, and there might be a lot of business coming out of this out of this disruption for the boutiques. But, you know, some of them might not be able to survive with the level of muted dealmaking activity. Over the last three years we estimate that there were at least a thousand boutiques operating in the M&A space. And so now a sharp reduction in that will have certainly an impact on the fees that come in and then whether or not there's enough business to go around to keep some of these firms in check. And so there could certainly even be some consolidation within the boutique space, or if you see some U.S. or European regional banks actually decide to purchase a boutique to bring in and bring in those dealmakers, bring in the expertise and bring in that corporate client list. The fact that we saw the first week for 16 years in which no one billion deals took place simply emphasizes the impact of this global lockdown. Perhaps the biggest takeaways were the ongoing issues for investment banks, given that deal making revenues have come to a standstill. But this may be a greater concern for the boutique deal makers who may now become themselves part of the deal. And it will also be interesting to see if tech companies start to use their huge cash piles for deals, particularly if they are being discouraged from engaging in this sort of buyback volumes that were being seen before the virus swept through markets. Some tech stocks have been the clear winners from this crisis, but could they now embark on a spending spree that begins to dilute their sky high valuations? We'll see you later with another update.