M&A Activity, Once White Hot, Grows Cold in Face of Global Pandemic

Chris Gaetano
Published Date:
Apr 21, 2020
Reuters is reporting that, for the first time since September 2004, no merger and acquisition deal worth more than $1 billion was announced worldwide last week. Globally, merger activity is down by 33 percent from this time last year in terms of deal amounts, with the total number of deals falling by 20 percent from last year. Furthermore, the market's interminable turmoil has caused companies in the process of merging to walk away or at least shelve their deals until the situation becomes a little more stable.

This downturn in M&A activity could be connected to the rising cost of credit. Years of low-interest rates have led corporations to gorge themselves on debt to an unprecedented degree, with total corporate debt levels in the United States going from $6.5 trillion in 2008 to about $10 trillion now. A lot of this debt went on to finance M&A activity over the past decade; a report from 2018 said that M&A activity accounted for 63 percent of all leveraged loan activities that year, and that leveraged buyout institutional loan activity grew by 25 percent over 2017, which itself had grown by 28 percent from the previous year.

While at the beginning of the year, the majority of firms expected to ramp up their M&A activities, this prediction clearly did not account for the COVID-19 pandemic. Since the crisis began, credit has become more difficult to access even despite recent moves by the Federal Reserve to ease borrowing costs. Consequently, it should not surprising that mergers have fallen dramatically, as the main way they were funded has suddenly become more expensive.

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