Texas M&A deals plunge in 1st quarter

The number of Texas-based companies and private equity firms doing mergers and acquisitions fell dramatically during the first quarter of the year. And the size or value of the deals that were announced were the lowest since 2009 and the Great Recession.

As a result of the crude oil price crisis, M&A in the oil patch plunged. For the first time in more than a dozen years, the energy industry was not the leading business sector for dealmaking in Texas.

M&A activity involving Texas businesses as the buyer, seller

or target dropped to 222 transactions in the January-FebruaryMarch period, 18 percent lower than the same three months a year ago, according to data provided by the research firm Mergermarket.

The value of those deals declined nearly 52 percent to only $11.8 billion. Only two transactions during the first quarter had a price tag of $1 billion or more, Mergermarket reported.

“The Lone Star State took a one-two punch in early 2020 from the COVID-19 crisis and a sharp decline in oil prices,” said Mark Druskoff, data-driven content coordinator for North America at Mergermarket, which is owned by Acuris Global.

The slump in M&A in Texas did not start in January.

According to exclusive data collected by The Texas Lawbook’s Corporate Deal Tracker, there were 303 non-confidential deals handled by Texas lawyers in 2019 – down from 409 logged the previous year. The value of deals advised on by Texas lawyers also sank 23 percent to $327 billion from the $426 billion booked in 2018. Globally, M&A deal count and deal value dropped 5 percent and 3 percent respectively.

Katten Partner Mark Solomon in Dallas said health care, food and beverage and industrials were strong for his firm, with technology being relatively strong.

“Our clients for the most part are agnostic,” he said. “The things they stay away from — and weren’t strong in anyway — are retail and energy.”

The Mergermarket data confirmed Solomon’s experience.

For the first time in 51 consecutive quarters, the energy sector – which including mining and utilities – was not the top business industry in terms of deal count in Texas. Instead, energy ranked fourth after industrials and chemicals, technology and business services.

“If there was a bright spot, it was the minerals space, which had quite a few transactions,” said Sidley Austin Partner Jim Rice. “Deal flow was really constrained due to an uncertain price environment, and that persisted into 2020, with nothing indicating it would turn around. The sector was really operating under a dark cloud.”

In fact, industrials and chemicals had more than twice as many M&A deals as energy in the during the period.

Pharma/biotech leads

The seven largest deals of last quarter were not in the energy sector, which generated only six of the top 20 deals.

In terms of value, energy came in second with $2.16 billion worth of deals, or 18.2 percent of the market. The top sector was pharma/medical/biotech, which generated $2.44 billion worth of transactions or 20.5 percent of the market.

Keith Fullenweider, partner at Vinson & Elkins, said M&A deal volume was relatively flat for the firm last year compared to 2018 in terms of volume and median deal size compared with deal value down 4.5 percent globally and up 2 percent in North America.

“One sector where we did see a significant uptick was in technology deals,” he said, noting the firm’s representation of Vista Equity Partners’ portfolio companies in multiple acquisitions, Houston-based ForeFlight on its sale to Boeing and Dallas-based MoneyGram on its agreement to use Ripple’s blockchain-based digital currency in its cross-border payments process.

Solomon doesn’t think there will be a pickup anytime soon, noting that the crisis is hurting small- and medium-sized businesses, not just financial institutions as in 2008.

“Meaningful certainty as to the effects of the pandemic would obviously help. Pending that, significant government actions might help,” he said. “You could easily see everything seize up for a while; it would take a massive injection to move things forward.”