As share prices rebound, so do mergers and acquisitions

Some companies are reviving deals on hold. Others seek to pivot for recession.

A series of blockbuster deals has led a resurgence in merger and acquisition activity since the start of July, with companies rushing to prepare themselves for the recession and dusting off deals that were shelved because of the pandemic.

Eight deals of more than $10 billion have been signed in the last six weeks, according to Refinitiv data, the fastest start to the second half for megadeals since 2007 when there was a merger and acquisition boom before the financial crisis.

The list of deals includes the $21-billion sale of Marathon Petroleum’s Speedway gas station business to Seven & i Holdings, the Japanese owner of the 7-Eleven convenience store chain. It also includes Analog Devices’ $20-billion deal to buy rival chipmaker Maxim Integrated Products.

“This is pretty extraordinary with respect to how this bounce-back has happened,” said Michael Carr, co-head of global mergers and acquisitions at Goldman Sachs.

The COVID-19 pandemic brought a six-year dealmaking boom to a halt. Corporate leaders put transactions on hold to concentrate on shoring up operations, while activist investors kept a low profile for fear of a backlash if they pushed for changes in the midst of a health crisis.

As share prices have recovered, many of the deals contemplated earlier this year are back on track. Monthly Refinitiv data show June and July each registered more than $300 billion in overall merger and acquisition activity, compared with $100 billion in April and $130 billion in May.

“The backlog is very busy and I would expect things to continue, barring a major event that brings things to a halt,” said Alison Harding-Jones, head of mergers and acquisitions for Europe, the Middle East and Africa at Citigroup.

“The kind of transactions we expect to see are big strategic takeovers, share-for-share deals among companies in the hardest-hit industries and an increasing number of private equity bids,” she said.

Some companies are looking to strike deals that will help them weather a tougher economic climate, said Nestor Paz-Galindo, global co-head of mergers and acquisitions at UBS.

“People are thinking about how to build scale and resilience, and that is a driver of M&A,” he said. Allstock deals that “you would never have done” when share prices fell in April have become easier since stocks have bounced back.

Most of the largest deals involved U.S.-based companies. The biggest Europeanled deal was German group Siemens Healthineers’ $16.4billion agreement to buy U.S.-based Varian Medical Systems, which makes devices for cancer treatments.

Blair Effron, co-founder of Centerview Partners, was more cautious. “The issue right now is that the ability to get comfortable enough to make a big bet in a non-face-to-face environment has shrunk,” Effron said.

“Transformational deals will pick up as the health crisis recedes,” he added.

Although big deals have recovered, the pandemic derailed several major transactions agreed to before the crisis. Others are in trouble, such as the planned $12.6billion takeover of Dutch diagnostics group Qiagen by its larger U.S.-based rival Thermo Fisher Scientific.

Thermo Fisher needs support from two-thirds of Qiagen’s investors by Monday evening to seal the deal. But a series of hedge funds are holding out from voting their shares in favor of the deal, arguing that Thermo Fisher’s offer undervalues the company given the demand for Qiagen’s COVID-19 research test kits.