COVID-19 Crisis Negatively Impacts M&A Activities
Research
The coronavirus crisis is hitting companies hard. This also affects M&A deals. The number of mergers and acquisitions (M&A) involving German firms has fallen sharply due to the COVID-19 pandemic. A similar trend can be observed in M&A transactions at the international level. The number of mergers and acquisitions by and with companies based in North America, China or Western Europe decreased significantly as well. This is the result of a recent analysis by ZEW Mannheim based on the Zephyr database of Bureau van Dijk, a Moody’s Analytics Company.
The ZEW-ZEPHYR M&A Index, which reflects the number of monthly M&A transactions in Germany, shows clearly how strongly the coronavirus pandemic has affected M&A activity in Germany in 2020. The twelve-month moving average of the indicator fell to a record low of 78.91 points, a value that is even lower than the previous lowest level of 83.84 points in 2011.
While the number of M&A deals involving German companies is declining, the average transaction volume has increased from 657 million euros to 766 million euros since 2019. “It remains to be seen how the M&A index in Germany will develop in the coming months. Corporate budgets for M&A activities are restricted in times of crisis, but crises also offer unique buying opportunities for financially strong companies,” says Ilona Tsanko, researcher in the ZEW’s “Economics of Innovation and Industrial Dynamics” Department and project manager of the biannual M&A Report.
The effects of the pandemic are also clearly noticeable in M&A transactions worldwide: The number of M&A deals by and with companies based in North America, China or Western Europe fell significantly during the COVID-19 pandemic. M&A activity between March and December 2020 was around 20 to 40 per cent lower than in the corresponding months of the previous year. However, the median deal was of a higher transaction value. While the value of the median M&A deal in the first half of 2020 was lower than in the previous year, the value of the median deal in the second half of 2020 was up to 75 per cent higher compared to the previous year.
Ilona Tsanko attributes the global decline in the number of deals combined with a higher transaction volume to the extraordinary conditions caused by the pandemic: “Government aid measures combined with the suspension of obligation to file for insolvency reduced the opportunities for cheap takeovers. In addition, smaller companies may be more strongly affected by the pandemic-related uncertainty than large ones and thus less likely to be involved in M&A deals.”
