We have spoken to senior executives at approximately 30 global corporates in the Media, Information, Marketing, Software and Tech-enabled services sectors to gain insights as to the impact of the Covid-19 pandemic on their M&A activity over the short to medium term.
1 Will you remain active in M&A over 2020?
60% of corporates we spoke to are likely to remain active throughout 2020 Uncertainty around the timing of a return to “normal” economic activity, however, will undoubtedly impact their M&A volume, at least for the next few quarters.
For some, M&A will continue to be a key part of their strategy, while for others, a potentially less competitive M&A environment will allow them to be more opportunistic.
2 What impact do you expect to see on valuations across your sector?
Two-thirds of respondents expect a softening in valuations, while one-third don’t expect much change This expected decline will be due to both a reduction in multiples as well as the underlying metric they are applied to. However, valuation for strategic and premium assets is likely to see less of an impact.
3 Will current events change the way you structure M&A transactions?
Corporates were unanimous on the fact that the pandemic would impact how deals are structured At least in the short to medium term, the increased volatility has led acquirers to revisit the way their deals are structured, either as a way to bridge valuation gaps and/or to de-risk transactions. Several alternatives are under consideration and acquirers will be assessing their approach on a case by case basis.
4 How will you approach valuation given near term uncertainty created by Covid-19?
Respondents suggested that they will approach valuation case by case and look at a combination of metrics Corporates that continue to pursue M&A will be re-looking at the way they approach valuation, particularly for those assets impacted by Covid-19.
The Covid-19 pandemic, with its unprecedented lockdown measures, has unsurprisingly impacted M&A activity around the world. In the sectors we cover, activity for April and May was down c.50% on the prior year. However, deal activity is yet to hit the monthly nadir seen during the 2008 crisis. Though volumes will be down, for the large part, respondents to our survey confirm that they will remain active acquirers in the short to medium term. While many will be opportunistic on where they focus their attention, others will see more focused M&A strategies given the competing use of capital.
Early indications are showing that valuations and deal structures are being impacted to take into account near-term uncertainty, with both acquirers and sellers being more flexible and creative to get deals over the line. Further, premium assets in markets with predominantly strong tailwinds are still highly sought after and therefore less likely to have their valuations impacted.
While volumes will likely remain low for Q3, anecdotal evidence suggests that deal pipelines are building towards a more active final quarter 2020 … watch this space!