M&A deals sink in 2020 despite year-end rally

The volume of mergers and acquisitions involving Texas businesses plunged in 2020 to the lowest level since 2013, even as deal activity bounced back strongly during the final three months of the year.

The number of transactions in which Texas companies or private equity firms were the buyers or sellers fell 19 percent last year as the overall business climate cooled due to the coronavirus pandemic and the beating taken by the state’s energy sector, according to data provided by Mergermarket, an independent research firm.

The 1,024 deals completed in 2020 had a combined value of $259 billion, a 14.6 percent drop from 2019 and the worst annual M&A deal value since 2011.

The year began with no hint of the upheaval to come. There were 315 deals announced in the first quarter, compared with 317 the previous quarter, according to Mergermarket.

But deal activity plummeted in the second quarter to just 155 transactions as a result of COVID-19 lockdowns, travel bans and work-from-home orders. In fact, Q2 had the fewest M&A deals since the third quarter of 2009 and the depths of the

Great Recession.

The market began to recover in the third quarter, with 252 transactions, and in the fourth there were 300 as the business world adapted to remote working systems and as lockdowns were lifted.

While COVID-19 lockdowns early in the year ground dealmaking to a halt, the pandemic cannot be completely blamed for the decline in activity, as energy M&A activity was already on the downward slide from 2018 to 2019, according to Houston-based Vinson & Elkins partner Matt Strock.

But King & Spalding partner Jonathan Newton pointed out that lower deal activity in 2019 versus 2018 did not make a trend.

“I think 2020 was poised to be a really good M&A year, putting aside COVID, because economically things were going really well, there was a lot of momentum,” Newton said.

“And then, unfortunately, what would have been a really good M&A year was completely reversed by virtue of COVID.”

The pandemic had another interesting effect on deal activity last year: The fourth quarter, historically one of the quietest periods of the year in terms of M&A, saw the most activity, with 300 deals amounting to $118 billion announced. The weakest quarter was the period from April to June, with just 155 deals adding up to $12.5 billion.

“I think the fourth quarter was the busiest partly because the second quarter could not have been any worse,” Kirkland & Ellis partner Sean Wheeler said.

Energy, mining and utilities deals, totaling $57.2 billion in value last year, made up the largest share of the market with 25.2 percent. Technology was a close second at 22 percent.