The world of mergers and acquisitions received a big shake-up last quarter due to global health concerns—but was the Q2 2020 M&A landscape really as dire as some forecasts predicted? In this article, we’ll go over the highlights of Q2 2020 M&A.
1. Total U.S. deal volume down
Most analysts expected that Q2 2020 M&A would be significantly slower, and these predictions turned out to be generally accurate. According to Bloomberg Law, global M&A activity in the first half of 2020 plunged to $1.1 trillion, from $1.9 trillion the year before. In particular, transaction volumes for Q2 2020 were at the lowest point since 2004.
Q2 2020 and H1 2020 saw a marked slowdown in M&A activity, especially in the United States. A study by the global brokerage and advisory company Willis Towers Watson found that M&A activity in North America underperformed their regional index by 7.2 percent, with only 137 deals completed in H1 2020 (compared with 188 in H1 2019). On the other hand, the study also found that European and Asia-Pacific buyers performed markedly above regional indices.
One industry that has been heavy-hit is the U.S. broadcast sector, where Q2 2020 M&A volume was at just $90.9 million—the lowest level since records began in 1983. The last big deal was in April, when Mission Broadcasting agreed to purchase three digital TV stations from Marshall Broadcasting Group. The Mission-Marshall deal also made up 54 percent of the entire sector's M&A volume for Q2 2020.
2. Substantial uncertainty
The Q2 2020 M&A slowdown is likely attributable to several factors: some companies’ finances have become more strained, while others are skittish and adopting a “wait and see” approach toward M&A. For example, Boeing abandoned a $4.2 billion deal with Embraer in April, which many analysts blamed partly on the current lack of travel and the resulting impact on the airline industry.
According to a June 2020 executive survey by the Harvard Business Review:
51 percent of respondents have initiated a “temporary pause” on M&A, while 12 percent said that they were still concluding late-stage M&A deals.
26 percent expect that their M&A volume for the remainder of the year will be significantly reduced.
A sizable minority—23 percent—say that their M&A strategies are either not affected, or have been accelerated due to new opportunities.
3. Healthcare M&A less impacted
The healthcare industry has been hard-hit in recent months, as many elective surgeries and procedures have been canceled or postponed. According to a study by FAIR Health, U.S. healthcare revenues decreased by more than 40 percent in March and April 2020, especially in specialties such as primary care, oral care, dermatology, and cardiology.
Healthcare M&A, on the other hand, has seen a far less dramatic decline. The financial consulting firm Kaufman Hall found that, although healthcare M&A deals were down in Q2 2020, this quarter also broke records with one of the highest figures for average seller size by revenue. Two major deals in June helped keep healthcare M&A afloat this quarter:
The purchase of the healthcare network Steward Health Care by a physicians’ group.
The proposed merger between health systems Advocate Aurora Health and Beaumont Health.
4. Technology M&A still robust
Technology is another sector that was relatively unaffected in Q2 2020 M&A deals. In general, the technology industry has weathered the storm in recent months, thanks in no small part to many tech workers’ ability to telecommute.
Giant tech firms such as Facebook, Microsoft, Apple, and Amazon helped keep technology M&A afloat in the second quarter of 2020. Major deals this quarter included:
Facebook’s purchase of the GIF-making website Giphy for $400 million in May.
Microsoft’s acquisition of the cloud communications firm Metaswitch Networks, also in May.
Apple’s purchase of NextVR, which builds virtual reality experiences for live events, in May for $100 million.
Amazon’s acquisition of the self-driving car startup Zoox for $1.2 billion in June.
Will we see an uptick in M&A activity in the coming months? Check back in early October for the Q3 M&A recap and highlights.