COVID-19 AND THE M&A MARKET: DEAL VOLUME AND VALUE

Since mid-March, M&A volume has slowed dramatically as the U.S. economy shut down and state governments implemented stay-at-home orders. The chart below illustrates the monthly decline in announced transactions through 2020 and compared to the same period in 2019. Monthly deal announcements have declined by more than 50% since January 2020.

The decline in volume can be attributed to buyers focusing on stabilizing their existing businesses and the uncertainty on the timing of recovery. Also, lenders had limited financing capacity for new deals due to overwhelming demand of PPP loans and addressing issues with existing clients.

Certain industries experienced a higher decline in M&A activity than others. Deal volume was lower for businesses that experienced significant disruption during the stay-at-home orders. Health care services transactions, such as physical therapy practices and dental practices, declined approximately 37% compared to the same period in 2019. Similarly, retail deal volume was down approximately 36%. On the other hand, telecommunication and biotechnology companies saw higher M&A activity.

As the economy reopens, we are beginning to see evidence of renewed activity. Buyers with a strong financial position are starting to hunt for opportunities, and deals that were paused are moving forward. Alignment on valuation between buyers and sellers could be challenging. At the date of publishing, the S&P 500 is off its 2020 peak by 5%. The chart below shows where the market stands as of June 8 compared to its peak on February 19 by sector:

We expect buyers to have an increased focus on financial due diligence and transaction structures that share risk. We will examine this further in our next article on the impact COVID-19 will have on future deals.

If your strategic plans include the possibility of a transaction, learn more about our experience in advising clients through the course of a merger or acquisition, by contacting Peter Lieberman at 412.697.5364 or [email protected].

This article is a part of a series. Read the first article, "COVID-19 & THE M&A MARKET," here.