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06 April 2020

Q1 global M&A suffers sharp fall as Covid-19 bites

Wachtell, Freshfields and Latham top Mergermarket table by value with DLA Piper advising on the most deals

Xerox and HP logos

The lapse of Xerox's $35.5bn hostile bid for HP is symptomatic of market sentiment Shutterstock

Global deal making has ground to a halt with the value of Q1 2020 transactions falling back to levels not seen since 2013, according to analysis by Mergermarket.

Deal value for the first quarter plunged by 39.1% over the same period in 2019 to $563.7bn across 3,685 transactions with activity comparable to the first quarter of 2008, when the March bailout of Bear Stearns took place ahead of the full-blown crisis six months' later.

Wachtell Lipton Rosen & Katz maintained its status as the top law firm M&A adviser for 2019 by topping the Q1 global ranking by value, advising on 24 deals worth $106.9bn, with the UK’s Freshfields Bruckhaus Deringer ($104.1bn) enjoying a strong quarter in second place, followed by Latham & Watkins ($98bn), Skadden Arps Slate Meagher & Flom ($82.5bn) and Cleary Gottlieb Steen & Hamilton ($75.2bn).

The global Q1 top three by volume was unchanged from the same period in 2019 with DLA Piper in number one spot having advised on 106 deals, just three more than Kirkland & Ellis (103 deals) and with Latham & Watkins in third (97 deals).

Beranger Guille, global editorial analytics director, said the M&A market would get worse before it gets better with the mid-market and mega deals equally affected.

He pointed to last week's lapse of Xerox’s $35.5bn hostile bid for HP in the light of market turmoil and predicted the 2019 splurge of 38 $10bn-plus mega deals was unlikely to be repeated.

In Q1 there were eight megadeals compared to 11 in the same period last year, with the $35bn tie-up between insurance giants Aon and Willis Towers Watson announced on 9 March, the day Italy’s national lockdown was announced. 

He added: “Because they impede site visits and physical face to face meetings, social distancing measures needed to contain the COVID-19 virus will be particularly disruptive to mid-market M&A.

“Dozens of private equity auctions have been put on hold or postponed and many owners of family-owned businesses will retire one or two years later than planned.”

However, he predicted buyout activity would be more resilient than in the financial crisis, having started the year strongly with global deals valued at $120.5bn against $120.4bn in Q1 of 2019.

He pointed out that financial sponsors were sitting on record amounts of dry powder and that lack of trust in financial institutions did not lie at the heart of the current crisis.

However, Guille said private equity deal valuations would be impacted, with the median EBITDA buyout multiple having already declined to 11.1x in the first quarter from 12.1x last year and expected to fall further. 

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