By Lina Saigol and Paul Clarke
In response to activist threats, companies whose stock-market valuations have fallen in recent weeks have rushed to shore up their takeover defenses and fend off hostile bids by adopting poison pills. These shareholder-rights plans allow existing shareholders to buy preferred shares at a substantial discount, thereby diluting the stake of a bidder and making a takeover more expensive.
“There has been a huge swing back to activism in the past two weeks, with activists returning to increase the pressure on management. It has been a big driver of M&A activity over the past two years and we expect that to continue to be a theme,” said Dirk Albersmeier, co-head of M&A at J.P. Morgan /zigman2/quotes/205971034/composite JPM -0.42%
Megadeals have been scarce since the crisis began. There were just 13 transactions over $10bn so far this year — down by 60% globally. Senior bankers expect this to return as the crisis shakes out sectors.
“Looking back to the last financial crisis, there were over a dozen, big transformative deals in the aftermath and we expect the same to happen over the next 12 to 18 months,” J.P. Morgan’s Albersmeier said.
“It’s inevitable that we will see some large transactions over the next year,” added Citi’s Harding-Jones. “Companies will need to reposition themselves after COVID-19 when it will perhaps not be entirely clear where growth will come from. Boards will need to respond to that and M&A will be at the forefront.”
Private equity could also help boost deal making as they look to deploy the $1.5 trillion of dry powder — or uninvested capital — they have amassed, according to data from capital market company Preqin.
“In the initial phase of the crisis, the key focus of private-equity firms was understandably on securing the health and liquidity of their portfolio companies,” said Ina De, co-head of the strategic investors group in Emea at JPMorgan. “But now, it’s clear the focus has rapidly moved to deploying their dry powder. Helping look for opportunities to invest is a top priority and we are spending a great deal of our time identifying appealing assets for our clients to buy.”
In the advisory league tables, Citi has gained the most during the first half of the year, leapfrogging rival JPMorgan to sit in third place, up from fifth at the same point last year. It advised on $202.6bn worth of deals, while Goldman Sachs /zigman2/quotes/209237603/composite GS +0.23% maintained its top spot in the first half of 2020, advising on $258.1bn of transactions.