09 Dec Jon Cartu Suggests: An interview with Simpson Thacher & Bartlett discussing glo…
Atif Azher is a partner in Simpson Thacher’s corporate department and is based in the firm’s Palo Alto office. His practice focuses on M&A where he represents private equity firms and public and private companies in a variety of domestic and cross-border transactions. Atif has experience across an array of corporate matters, including acquisitions, dispositions, carve-outs, leveraged buyouts, venture financings, strategic investments, joint ventures and other direct investments.
Fred de Albuquerque is an associate in Simpson Thacher’s corporate department and is based in the firm’s Palo Alto office. He focuses on M&A and has represented private equity sponsors such as EQT, Hellman & Friedman, Silver Lake Partners, True Wind Capital and TCV in complex corporate transactions. Fred also advises clients on corporate governance and general corporate and securities law matters.
During the first half of 2020, global M&A deal volume and value measured in dollars experienced a significant reduction from 2019 levels, with less cross-border M&A activity in large part due to the direct and indirect business impacts of, and market uncertainty stemming from, the covid-19 pandemic. Deal value in the United States over the first half of 2020 decreased 72.4 per cent year-over-year by value to US$274.5 billion, compared to US$996 billion for the first half of 2019, according to Mergermarket. Much of the overall drop in deal value can be attributed to a collapse in ‘mega-deals’ valued at over US$10 billion. For example, according to data supplied by Bloomberg, there were only 10 mega-deals in the United States in the first half of 2020, compared to 19 for the same period in 2019, a 47 per cent decrease in volume. Global deal value reached US$901.6 billion, representing a 52.7 per cent decrease relative to the first half of 2019, according to Mergermarket. Meanwhile, worldwide deal activity levels trailed about 32 per cent less compared to the first half of 2019, with 6,938 deals announced in the first half of 2020 compared to 10,115 deals during the same period last year (Mergermarket). The Americas, dominated by the United States, experienced dramatic slowdowns relative to 2019 while the rest of the world saw their global market share increase. According to Mergermarket, the Americas share of global M&A declined to 33.4 per cent, while Europe saw the largest market share gains of 32.3 per cent, slightly edging out Asia at 27.7 per cent. The first half of 2020 saw a massive decrease in announced transactions of US$2 billion or greater, with a nearly two-thirds decline in volume quarter-on-quarter in 2020 (54 of such deals in the first quarter of 2020 compared to 18 in the second quarter of 2020), according to Mergermarket. US private equity sponsors closed 392 exits valued at a combined US$134.8 billion through the first half of 2020 (PitchBook). Globally, private equity exits were down 70 per cent in May 2020 compared to the same period in 2019 (PitchBook). This decrease is, in large part, the result of business impacts and market uncertainty stemming from covid-19, which has contributed to a decrease in portfolio company valuations.
M&A deal volume in the Americas totalled US$391.8 billion in the first half of 2020, reflecting a decrease of 68 per cent from the first half of 2019, the lowest M&A activity in the region since 1998 (Bloomberg). According to Bloomberg, the United States continues to drive M&A activity in the Americas, accounting for 87.2 per cent of the region’s total. US-based transactions fell 72.4 per cent by value to US$274.5 billion, compared to US$996 billion during the same period last year (Mergermarket). During the first half of 2020, there were 2,139 US-based transactions, compared to 3,174 US-based transactions in the first half of 2019 (Mergermarket).
Private investments in public equity (PIPE) deals and ‘blank check’ special purpose acquisition company transactions (SPACs) gained increased prominence as investment tools in the first half of 2020. PIPE transactions in the first half of 2020 almost doubled in value compared to the same period in 2019. PrivateRaise recorded 83 PIPE deals in the first half of 2020 that amounted to US$10.2 billion in total value, compared with 99 such transactions worth a combined US$5.3 billion in the same period last year. According to PitchBook, during the second quarter of 2020, SPACs had the most active quarter on record.
The technology sector remained popular among financial sponsors, accounting for just under 20 per cent of all private equity deals during the first half of 2020 and representing just over 30 per cent of private equity deal value (PitchBook). US private equity exit volume increased to US$134.8 billion over 392 deals in the first half of 2020, relative to US$110.1 billion over 371 deals in the first half of 2019 (PitchBook). Private equity median deal size ticked down for the first time in five years, with the median private equity buyout size in the US reaching US$135 million during the first half of 2020 (PitchBook).
Notable private equity transactions in the Americas in the first half of 2020 include the US$22.0 billion merger of Kronos Incorporated and Ultimate Software, backed by Hellman & Friedman, and the US$14.3 billion take-private of Zayo Group Holdings, Inc by affiliates of EQT Infrastructure IV fund and Digital Colony Partners, which represents the largest syndicated private equity investment and the second largest leveraged buyout since 2008.
Europe, Middle East and Africa
Driven by political and economic uncertainty, including the covid-19 pandemic, that has discouraged M&A activity in Europe, the Middle East and Africa (EMEA), M&A deal volume in the region decreased in the first half of 2020 to its lowest level since the first quarter of 2010, totalling US$332.2 billion, a 27 per cent decrease in deal volume from the first half of 2019 (Bloomberg). M&A deal volume in the Middle East and Africa remained strong, primarily as a result of several high-value deals such as the US$20.3 billion TAQA acquisition of a majority stake in certain assets of ADPower (Mergermarket). According to Bloomberg, the United Kingdom, Germany and France were EMEA’s most acquisitive regions, accounting for about 44.4 per cent of its total deal volume with US$147.4 billion in value. Due to the covid-19 pandemic, European outbound M&A activity levels dropped to US$42.9 billion in the first half of 2020, a 68.1 per cent decrease from the first half of 2019 and its lowest year-to-date value since 2013 (Mergermarket). EMEA private equity deal flow accounted for US$127.3 billion in the first half of 2020, a 40.1 per cent decrease from the first half of 2019 and the number of private equity deals in the region decreased by 17.4 per cent over the same period (Bloomberg).
Notable private equity transactions in the first half of 2020 include the US$5.3 billion acquisition of Masmovil by a consortium of Cinven Partners, KKR and Providence Equity Partners and the US$2.6 billion sale of Coty’s beauty business to KKR (Mergermarket).
Announced M&A deal volume in the Asia-Pacific region (excluding Japan) totalled US$336.4 billion in the first half of 2020, which represents a 8.4 per cent decrease from comparable deal volume in the first half of 2019 (Bloomberg). Similarly, Japan also experienced a decrease in M&A deal volume, totalling US$10.7 billion and representing a 17.5 per cent decrease as compared to the first half of 2019 (Mergermarket). Despite the negative economic impacts from the covid-19 pandemic, China and Hong Kong accounted for 54 per cent of M&A deal activity in the Asia-Pacific region (excluding Japan) during the first half of 2020, representing the largest M&A contributors in the region (Mergermarket). In addition, the Asia-Pacific region experienced a wave of take-private acquisitions of China-based, US-listed companies following the Trump administrations’ threats to restrict Chinese companies’ access to the US capital markets (Mergermarket). Outbound M&A value in the Asia-Pacific region (excluding Japan) totalled US$24.8 billion, representing a decrease of 42.7 per cent relative to the first half of 2019 (Mergermarket). Private equity activity in Asia-Pacific in the first half of 2020 was valued at US$82.7 billion, which represents a less than 1 per cent increase as compared to the first half of 2019, according to Bloomberg. Sequoia Capital was the most active private equity investor and General Atlantic LLC recorded the highest transaction value total in the first half of 2020 in the Asia-Pacific region (Bloomberg). Notable M&A deals include the US$10.6 billion sale of Tesco…