While we all hunkered down at home to contain the spread of COVID-19, so too did the merger-and-acquisition dealmakers who help the economy hum.
Aside from air travel limitations that initially curtailed due-diligence visits to prospective targets, volatility in the financial markets created some “buyers’ remorse” as acquirers looked to renegotiate terms or to “walk away altogether,” says Paul Jevnick, managing director of mergers and acquisitions at investment firm BMO Capital Markets.
The COVID-inspired shutdown “caused everything to virtually seize up,” he noted in a webinar last week looking at current M&A activity, as it’s known, particularly in the food and beverage sector. The event was hosted by The Food Institute.
According to Jevnick, the number of announced deals in the April-to-June second quarter was off 43 percent from the year-ago period, and was the lowest it had been since 2009 – during the Great Recession. At the same time, the value of the deals was down 86 percent year over year in the quarter, putting valuation at the lowest level since 2008 – also a Great Recession year.
In the stratosphere of high-end deals – those valued at $1 billion or more – “the volume fell off a tremendous amount,” he said. Typically, a quarter will see some 50 such deals, but for April-June this year, there were just 14. And most of them came in June alone, as more of the country reopened and economic activity resumed.
“These statistics surprise even me,” Jevnick said, pointing out that in the third week in April, for the first time in more than 15 years, “not a single billion-dollar transaction was announced.”
“It tells you just how much M&A transaction volume slowed,” he said.
The June uptick in big deals is a promising sign, though.
With every recession going back to the 1930s Great Depression, “the M&A market suffers significantly,” Jevnick said. “And it comes back – usually comes roaring back over a couple-year period of time.
“We think it’s going to come back much quicker this time.”
He offered a chart of M&A activity in the food and beverage sector, showing that from a low of two deals in April, seven were announced in June. Dealmaking is expected to remain strong in the sector, particularly as some big-name brands divest holdings through “portfolio reshuffling.”
In one June deal, for instance, Nestle USA agreed to sell its North American Buitoni business – the refrigerated pasta and sauces brand – to a private equity firm that renamed it Buitoni Food Co. A purchase price was not disclosed.
Jevnick said signs point to increasing M&A activity in the second half of the year, but the dealmaking for 2020 won’t match 2019’s total of $1.45 trillion.
“Ultimately, our outlook is that robust M&A in the food sector is going to come back this fall” and build throughout 2021, he said. “We’re quite optimistic.”
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected].