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June 30, 2020, 9:18 a.m. EDT

Pandemic fears grip M&A as deal making slumps to 23-year low in Europe

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By Lina Saigol and Paul Clarke


MarketWatch photo illustration/iStockphoto
The value of global deal making has plunged 55% so far this year, as chief executives held on to their cash amid the pandemic.

The number of European deals crashed to the lowest level in 23 years during the second quarter, as the full impact of the pandemic pushed chief executives to preserve their cash levels and refrain from making acquisitions amid fears of a global recession.

There was just one deal in Europe over $10 billion in the three months from April to June, when Spain’s Telefónica /zigman2/quotes/207034643/composite TEF +1.40% and U.S. tycoon John Malone’s cable group Liberty Global merged their U.K. operations in a $12.8 billion deal to create a new television and mobile company with a combined value of almost £28 billion ($35bn).

In total across Europe, there were just 1,958 mergers and acquisitions deals unveiled in Europe during the second quarter, according to data from Refinitiv, as the continent was forced into lockdown and executives focused on ensuring their companies’ survival during the fallout from the pandemic. This marked the lowest number of deals since the first quarter of 1997.

Read: Cash Is King — and M&A Goes MIA

The value of deals, $182.9bn, was the lowest second quarter total since 2016. However, this was skewed by one transaction — Unilever’s /zigman2/quotes/205449809/delayed UK:ULVR +2.32%  move in June to abandon its dual Anglo-Dutch corporate structure and become a single holding company based in the U.K. Refinitiv counted this as a $106.9bn deal.

Excluding the Unilever deal, the value of European M&A in the second quarter declined by 62% in 2020 compared with the same period last year.

The slump in Europe came amid a broader collapse in global deal making, the value of which plunged by 55% compared with the same period last year.

“Before the crisis hit, there were a large number of deals that were due to come to market that were put on hold, so not surprisingly there has been a meaningful slowdown in M&A activity,” said Alison Harding-Jones, head of M&A for Europe, the Middle East and Africa at Citigroup /zigman2/quotes/207741460/composite C -0.76% .

Read: Terminating Takeovers: Governments Should Think Twice Before Pulling up the Hatches

Globally, deal making fell to an 11-year low during the second quarter, with the total value of deals tumbling to $485.3bn. In the U.S. — the biggest market for M&A deals in the world — the value of deals slipped to a 17-year low to $103.5bn, an 85% decline on the same period last year.

That included European food delivery service Just Eat Takeaway’s /zigman2/quotes/201653805/delayed NL:TKWY +3.18% $7.4bn takeover of US-based app Grubhub /zigman2/quotes/210404212/composite GRUB +4.76%  to create the world’s largest food delivery service outside China.

So far this year, the value of deals worldwide dropped 41% after several big-ticket acquisitions were struck in the first quarter just before the pandemic went global. These included insurer Aon’s /zigman2/quotes/203448336/composite AON -0.73%  $30.1bn purchase of rival Willis Towers Watson /zigman2/quotes/202694274/composite WLTW -0.31%  in March and Morgan Stanley’s /zigman2/quotes/209104354/composite MS +1.16%  $13.1bn acquisition of online brokerage E*Trade /zigman2/quotes/205731930/composite ETFC +1.13%  in February.

Conversations in boardrooms have gradually restarted in recent weeks, as companies gain more clarity on the outlook for revenues for the rest of the year.

“After the volatility of March and April, clients have got a handle on liquidity and have a clearer view of what the rest of the year is likely to hold. Boards are thinking strategically about what this means for them and our engagement with clients has rarely been higher,” Cathal Deasy, head of Emea M&A at Credit Suisse /zigman2/quotes/202835784/composite CS +2.39% , said.

“There have been clear winners from the crisis, either in particular industries or players who are stronger. This confidence has been recognized in the boardroom and people are looking to move forward to capitalize on that strength,” he added.

The reemergence of shareholder activists, who had initially retreated from agitating for change to give companies breathing space, could also kick-start M&A.

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