H1 2020: PE-backed buyouts dominate M&A activity

While overall M&A activity dropped considerably in the first half of the year, PE accounted for the largest portion of deals since 2007, according to Refinitiv data.

PE-backed buyouts captured the largest slice of the M&A pie in 13 years as total deal activity sunk the first six months of the year, according to data from Refinitiv.

Globally, the number of deals fell by 16 percent through the first half of 2020. But private equity deals accounted for 17 percent of overall M&A activity over the period – the highest percentage since H1 2007.

“PE is outperforming the broader market,” said Matt Toole, director of deals intelligence at Refinitiv.

Although the overall value of private equity transactions dropped by 24 percent, alongside an 8 percent decrease in deal count, the alternative investment class shows promise.

“These [PE] companies have a tremendous level of capital,” added Toole.

Another form of capital raise, bond issuance, hit record highs in the first half of 2020, according to the financial market data provider.

The global debt capital markets issued $5.5 trillion worth of bonds in the first two quarters, a 35 percent jump from a year ago and the strongest opening over a six-month period since 1980.

Still, the M&A markets generated only $1.2 trillion in combined deal value over the corresponding period, a 41 percent drop year-over-year.

The market volatility can be partly attributed to moves made by the Federal Reserve to keep the credit market afloat amid the pandemic, according to Toole.

Besides the roll back of interest rates in March, the Fed also started buying back corporate bonds. On the first day, the bond-buying facility bought $305 million worth of corporate bonds, according to publicly available data.

“It created a perfect storm,” said Toole. “Conditions were extremely attractive for issuers who wanted to be in the market and even the opportunistic issuers.”

Outlook

Toole expects the airline, media and travel industries to reimagine their structures. But the state of the deal pipeline over the remaining months, he said, depends on how quickly industries open and how much longer the lockdown continues.

“We haven’t seen a huge spike in transactions; most businesses are assessing what their landscape looks like.”

Still, Toole expects financial sponsors may see even more opportunity for investment: “PE might be able to [go] where they haven’t been in the past few years.”

“They certainly have the capacity to make a transaction now,” he added, pointing to the huge sums of dry powder sitting on the sidelines.

The presidential primaries draw closer as the second half of the year gets underway. Private equity scrutiny has softened with Elizabeth Warren out of the race, but election results still stand to impact the M&A cycle – just like any given sector.

“What remains to be seen is the dialogue around regulations,” said Toole.

Action Item: Check out Refinitiv’s full M&A report here.