• Inna Ri

‘Green shoots’ are appearing in global deal-making activities, consultancy says



By Abigail Ng

KEY POINTS


  • Some signs of recovery have emerged in the global deal-making market over the past six weeks, Christian Sealey of Morrow Sodali told CNBC this week.

  • More than 1,000 deals were signed in Asia-Pacific last month, compared to 850 in the U.S. and 816 in Europe, Refinitiv data showed.

  • Low interest rates are “obviously favorable” for financial transactions at this point, Sealey said.

Some signs of recovery have emerged in the global deal-making market in the last six weeks, said the Asia-Pacific chief executive of consultancy firm, Morrow Sodali.

It comes after a period where mergers and acquisitions saw a “very, very significant downturn” amid the coronavirus crisis in the first half of 2020, compared to the same period a year ago.


“In the last six weeks, we have seen some green shoots, and we’ve started to see some of those mega deals come back online,” Christian Sealey told CNBC on Tuesday.

According to Refinitiv data, eight deals worth more than $10 billion each, were signed in July and August so far.

Among those deals are the $21 billion agreement in which Seven & i Holdings, the Japanese owner of 7-Eleven convenience stores, acquired Marathon Petroleum’s Speedway. German health-care company Siemens Healthineers also announced this month it was buying Varian Medical Systems for more than $16 billion.

“Some of the green shoots that we are seeing now are deals that were progressing prior to the pandemic and were put on hold, or have arisen due to geopolitical tensions (between the U.S. and China),” Sealey said.

China-based companies that are listed in the U.S. are starting to reassess their strategy and consider going private at this “opportune time” when valuations may be lower, he said. Other economic factors are also encouraging for dealmakers. “Particularly across the (Asia-Pacific) region, we’ve got a number of countries that are operating in a very low interest rate environment, that’s obviously favorable for financial transactions,” he told CNBC’s “Capital Connection.” Additionally, he said Asia and Europe, which were hit by the coronavirus earlier, have seen mergers and acquisitions “bounce back sooner” than the U.S. More than 1,000 deals were signed in Asia-Pacific last month, compared to 850 in the U.S. and 816 in Europe, Refinitiv data showed.

Opportunity or distress?

The technology sector will be one of the “big winners” when it comes to mergers and acquisitions, Sealey said.  “Any company that’s been able to pivot or embrace technology to ensure the viability of their operations has been in a good place there,” he said, noting that Covid-19 brought the sector to the forefront. “We’ve started to see ... globally, an increase in technology-related transactions, and I think that will continue.”

Asked if deal-making in the second half of 2020 is likely to be opportunistic or due to corporate distress, he said it will be a bit of both. 

Companies will want to strengthen their balance sheets and ensure they’re well-positioned for the future. “They’ll look at what are the core assets that they need and what are their non-strategic ones, and what can they get rid of,” he said. “There will be a fair bit of activity in terms of a rebalancing of companies’ portfolios.”

There will also be an element of “opportunistic play.”

“For some companies, where it makes sense strategically to be a bigger and more scalable business, that would be a strategy they pursue,” he said. 

On the other hand, Sealey said firms in the retail or oil and gas sectors, which have struggled to raise new funds, may be “opportunistic targets for industry consolidation.”


CNBC

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