Q3 2020 M&A Recap: What Did We Learn and What's Ahead?

Mergers and acquisitions are like the “celebrities” of the business world—they’re worth a lot of money and everyone wants to pay attention to them. As is tradition every three months, we’re taking a look at the last quarter to see what’s happened in Q3 2020 M&A activity. (You can also check out our reviews of Q2 2020 M&A and Q1 2020 M&A.)

Q3 2020 M&A Roundup

While the pandemic continues to have profound repercussions for the global economy, there are a few indications that M&A activity is bouncing back from its lowest depths earlier this year.

According to Bloomberg Law, global M&A activity during Q3 2020 was at $2.1 trillion, down from $2.75 trillion in 2019. This represents a year over year decrease of 23.6 percent. However, this also represents an improvement from last quarter: Q2 2020 M&A activity totaled just $1.1 trillion, down from $1.9 trillion the year before. Bloomberg Law analyst Diane Holt has observed that “we did get a bounce back in the third quarter in terms of volume and numbers,” but cautions that there still remains a good deal of volatility in the market.

U.S. M&A activity, in particular, was at $414 billion in the third quarter of 2020, tripling from Q2's anemic results. Q3 M&A in Europe and Asia-Pacific also experienced significant rebounds: Europe increased 21 percent to $231 billion, while Asia-Pacific jumped 67 percent to $274 billion.

What’s more, financial data provider Refinitiv has noted the rise of “mega deals” (i.e. M&A deals worth at least $5 billion) for M&A in Q3 2020. There were 21 such mega deals in July and August, worth a collective $256 billion. In particular, 9 of these mega deals were announced in August 2020, the second highest August on record after 1999.

Some of the most significant M&A deals announced in Q3 2020 include:

• Uber’s acquisition of its food delivery rival Postmates (which competes with Uber Eats) for $2.65 billion.
• Johnson & Johnson’s purchase of the novel therapeutics manufacturer Momenta Pharmaceuticals for $6.5 billion.
• The merger between virtual health companies Teladoc and Livongo for $18.5 billion.
• The merger between semiconductor manufacturers Analog Devices and Maxim for $20.9 billion.
• NVIDIA’s purchase of the computer chip maker Arm for a stunning $40 billion.

As we noted in our Q2 2020 M&A recap, the technology sector has continued to drive much of the highest-profile M&A deals in 2020. According to Refinitiv, the tech sector accounted for 27 percent of M&A activity in August 2020, with 6 out of the month’s 10 largest deals.

In addition to the Uber–Postmates, Analog Devices–Maxim, and NVIDIA–Arm deals, other large tech M&A deals in Q3 2020 include:

• Intercontinental Exchange’s $11 billion acquisition of Ellie Mae, a software company for the mortgage finance industry.
• Liberty Global’s $7.4 billion (6.8 billion Swiss francs) acquisition of Sunrise Communications, a Swiss telecom company.
• Chinese tech giant Tencent’s $1.2 billion acquisition of the search engine company Sogou.

However, many analysts note that M&A isn’t out of the woods quite yet, especially in the U.S. Global M&A activity in 2020 is down by 31 percent year over year through August, with deals at their lowest level in the U.S. since 7 years ago. Interestingly, M&A deal activity is slightly up when compared with last year in the European and Asia-Pacific regions. 

What’s Ahead for Q4 2020 M&A?

If trends continue, Q4 2020 M&A should see an upward trend, as organizations adjust to the new normal and as volatility and uncertainty in the business landscape decrease. Many transactions that were postponed due to the pandemic will likely be revived, while companies that continue to struggle may decide to look for a buyer.

However, it’s very likely that total deal-making activity will still be down year over year next quarter, and for 2020 as a whole. According to a poll by the advisory and accounting network HLB, just 14 percent of advisors believe that an M&A recovery will materialize by Q4 2020; a plurality of respondents (45 percent) estimate that the recovery will take longer, until Q2 2021.

To read a variety of perspectives and forecasts about how the rest of 2020 will unfold, check out "Roundtable on M&A Trends: Deal Outlook 4Q 2020 and Beyond" from Crain's Chicago Business earlier this year. For example, John Iwanski, executive managing director of transaction advisory services at the business advisory firm Riveron, predicts: "The next six to 12 months will be a volatile period for global M&A. While there's expected to be an uptick in activity in the fourth quarter, the nature of the transactions will vary. Corporate carve-outs will remain active, distressed M&A will accelerate as sellers are faced with the economic realities of the current market conditions and value investors capitalize on the opportunities."

Preparing for Upcoming M&A Opportunities

No matter the state of the global M&A market, you don’t want to be caught unprepared when opportunity comes knocking, which means that it’s essential to prepare for an M&A deal from day one. Because only 16 percent of startups are ever acquired (with an additional 3 percent reaching an IPO), planning your exit strategy is one of the best things you can do to ensure that your startup venture is a success.

To prepare for upcoming M&A opportunities, take the following steps:

1. Perform your own due diligence by sorting through your company's documents (especially financial ones). Potential buyers will want to see a host of documents from you, including your business plans, employee records, financial statements and tax returns, and much more. We recommend setting up a virtual data room for storing your confidential and sensitive information and securely sharing it with a third party.
2. Get the key company stakeholders, including board members, on the same page regarding the idea of a sale. Make sure that communication channels are aligned so that there aren't any future misconceptions or crossed wires.
3. Reach out to your major partnerships and clients about the possibility of a sale. Make sure that your clients understand the prospect of a sale in the future, and what that means for your company and your relationship.
4. Hire M&A advisors to help with the sale, and stay in close, regular contact with them so you can quickly respond to changes in the market and new opportunities.

Looking to engage in an M&A deal in the near future? We’ve written a complete guide to the M&A due diligence process so that you know what to expect at each step.