UK M&A falls 99 per cent to near 35-year low as coronavirus bites

UK M&A has hit a near 35-year low as the coronavirus pandemic saw deal value fall 99 per cent from March to April. April saw 35 UK M&A deals, with total deal value of £409.1 million, the lowest value since September 1985. This also reflected a 92 per cent deal value drop from April 2019.

Transaction volume, meanwhile, fell 84 per cent from March and 87 per cent from April last year as both business confidence and the economy took a huge hit from coronavirus.

Beyond the UK, the global coronavirus lockdown saw deals with a European target hit their lowest monthly total in April since August 1992, with the deal value total of £4.9 billion representing a 91 per cent drop from March.

Global M&A hit its lowest level since September 2002, as April registered worldwide M&A deal value of £55.7 billion, down 72 per cent from March’s total. Cross-border M&A deal value in April was £14.8 billion, the lowest total value since February 2002 and a 67 per cent drop from March.

Among the deals to be hit is the proposed merger of Tilney and Smith & Williamson, which has been delayed by the pandemic. The initial April 16 expiry date of the merger had already been extended as the companies looked to agree a new transaction structure to meet regulatory approval.

Smith & Williamson shareholder AGF Management informed the Toronto Stock Exchange in April that the deal would continue with a revised structure and a pushed-back targeted closing date of the second half of 2020.

However, in a statement it said: “While all parties remain committed to the merger, given the covid-19 situation and the fact that the revised structure has not yet been agreed, there can be no certainty that the transaction will proceed”.

The £625 million merger was announced in September last year but ran into difficulty as the Financial Conduct Authority raised concerns that the merged businesses would carry too much debt under the original transaction structure.

While “significant progress” had reportedly been made on the deal, coronavirus appears to have put its completion firmly in the balance.

However, there do appear to be some signs of light in the darkness for the M&A market. Celebrity makeup brand Charlotte Tilbury is reported to have attracted a wide range of heavyweight suitors, with people close to the deal saying it could fetch over £1 billion.

Unilever Plc, Puig, L’Oreal SA, Estee Lauder and Shiseido Co. are reported to be among a host of international bidders for the London-based brand, along with several private equity firms. The company is reportedly poised to choose a winning bidder as early as May.

If a deal were to go through, it could show that the appetite for acquisitions in the beauty industry has remained intact despite the coronavirus pandemic, after the sector saw a bumper year in 2019.

However, one mooted deal in the beauty industry, the potential sale of Coty Inc.’s professional hair and nail products business has reportedly ground to a halt. German conglomerate Henkel and US buyout fund KKR are among the reported suitors, with some saying the deal could reach up to $8 billion.

Despite their interest, both Henkel and KKR are reported to be cautious to act in the current climate, with both said to be waiting until the impact of the coronavirus is fully visible, both on the industry itself and on Coty’s balance sheet.

While it is clear that, in the here and now, coronavirus is having an extraordinary impact on M&A, the longer-term effects are of course merely a matter of speculation for the time being. While David Ludwig of Goldman Sachs suggests that there could be significant activity across the M&A market once confidence returns, it is possible that such opportunities could not present themselves for some time.

M&A, and dealmaking more broadly, is a world in which face-to-face interaction is critical and central to the process. With forecasts that social distancing is likely to remain the norm until a vaccine is found, produced and distributed (which some say could take at least 18 months), it is likely that this element of M&A will remain disrupted for some time.

For more on how coronavirus might impact M&A going forward, read our deep-dive on Coronavirus, Business and M&A.

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