There hasn’t been much for dealmakers to cheer about in recent months, but a Deloitte report suggests that there may be some reason for optimism about what lies ahead in M&A:
When the COVID-19 pandemic swept into the US, it curbed deal-making significantly. Between February and March, the number of announced deals dropped from 2,349 to 1,984, with deal value decreasing from just over $151 billion to about $130 billion. Instead of launching new deals, the urgent priority for many finance leaders was to resolve any in-progress transactions, re-evaluating their strategic assumptions and taking appropriate actions to safeguard their financial positions.
Now, as finance leaders move past the recovery phase of the pandemic and conceive plans for thriving in a changed economic landscape, M&A is poised to play a central role. In April, Deloitte conducted a snap poll of 2,800 US companies, and 70% of the respondents indicated they will continue with M&A and, in some cases, accelerate their deal activities over the next 12 months. In addition, 31% of the 156 CFOs who responded to Deloitte’s Q2 2020 North American CFO Signals™ survey said they expect to acquire distressed assets or businesses over the next year.
The report addresses offensive and defensive rationales for M&A activity, and notes that plenty of buyers are well positioned to move on attractive opportunities. The S&P 1200 companies have a record $3.8 trillion in cash reserves and the wherewithal to service debt in a “dovish” monetary environment. That’s in addition to the $2.4 trillion war chest that PE firms have ready to be deployed.
-John Jenkins, DealLawyers.com July 15, 2020