COVID-19’s Influence on M&A

We at Watermark want to contribute to the developing COVID-19 situation by sharing facts and opinion on how this global development is affecting M&A markets. The information table below should be no surprise regarding a slowdown in closed United States M&A transactions year to date through March 15th. Interestingly enough, M&A transaction announcements are up 33% vs the same period in 2019, however transactions closed are down 15.3%. Closed M&A deal value has also declined 31% year-over-year. Energy and Financials deal volume are off the most of any industry. Meanwhile, valuation multiples (Total Enterprise Value/Revenues and Total Enterprise Value/EBITDA) are down between 25 and 44%.

While it is early to opine on how much the M&A deal market will decline in 2020, our advice to owners considering selling is to evaluate the strength of your core business model for the next 12 to 24 months in light of volatile conditions. Your projections will come under greater scrutiny in due diligence in times like these, which can affect your negotiations, purchase price, and ability to close the transaction. M&A will certainly continue in a disruptive market, but how you prepare for a M&A transaction (preparation phase disciplines) must be the top priority.

For acquirers, if your core business is anticipated to be healthy in the upcoming market conditions, and M&A has been an important growth strategy, the pendulum is likely swinging from a seller’s market to an acquirers’ market. Strengthening your due diligence, valuation, synergies and integration planning teams should be a priority to capturing ROI from M&A near term.

United States M&A Activity Year to Date Through March 15, 2020 vs. March 15, 2019

YTD 2020 YTD 2019 % Change
M&A Transactions Announced 9,900 7,438 33.1%
M&A Transactions Closed 3,079 3,635 -15.3%
Closed M&A Deal Value ($ in Bn) $199 $288 -31.0%
Avg TEV / Revenue Multiple 3.44x 4.65x -26.0%
Average TEV/EBITDA Multiple 12.95x 22.89x -43.4%
# of Transactions Closed by $ Ranges:
Greater than $1Bn 40 54 -25.9%
$500 – $999.9MM 23 34 -32.4%
$100 – $499.9MM 157 201 -21.9%
Less than $100MM 649 847 -23.4%
Undisclosed 2210 2499 -11.6%
# of Transactions Closed by Sector:
Energy 45 82 -45.1%
Real Estate 583 633 -7.9%
Materials 102 110 -7.3%
Industrials 571 677 -15.7%
Consumer Disretionary 318 404 -21.3%
Consumer Staples 102 134 -23.9%
Health Care 280 336 -16.7%
Financials 205 289 -29.1%
IT 336 426 -21.1%
Communications Services 211 243 -13.2%
Utilities 45 45 0.0%
No Industry Assigned 282 256 10.2%

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