The coronavirus crisis has had a noticeable impact on the mergers and acquisitions market. The volume of transactions in 2020 fell by 50 percent in comparison to the previous year, while the number of deals also decreased. At the same time, the latest M&A study from KPMG reveals that the dynamism previously seen in the Life Sciences and Pharmaceuticals sectors has shifted to Telecommunications and Technology.
The market for mergers and acquisitions shrank over the course of last year compared to 2019. The number of transactions with Swiss involvement decreased from 402 to 363; meanwhile, the volume of transactions (USD 63.1 billion) was only half that of those made in the previous year (USD 127 billion). This decline in the volume of transactions can mainly be attributed to the fact that mega-deals simply failed to materialize in 2020. Nonetheless, KPMG’s annual “Clarity on M&A” study confirms that mergers and acquisitions remain an important pillar in many corporate strategies.
The M&A market suffered a particularly sharp decline during the second quarter of 2020, as the effects of the coronavirus pandemic began to take hold. Only 74 transactions were completed during this time, fewer than at any point since the start of 2017. With a transaction volume of only USD 7.1 billion, this also marked the lowest quarterly total since the end of 2015.
The key factors that caused the M&A market to contract over the past year were the great deal of uncertainty and the huge restrictions imposed by the onset of the coronavirus pandemic. As such, the primary focus of many companies during the first half of 2020 centered on overcoming the challenges created globally by the coronavirus crisis. “In light of the pressing challenges that companies were faced with, certain ongoing transactions had to be put on ice. The travel restrictions and the transition to working from home also caused delays to transactions,” explains Timo Knak, Head of Mergers & Acquisitions at KPMG Switzerland. Moreover, a number of companies are reported to have questioned or postponed planned deals due to the uncertainties dominating the market.
The 10 biggest transactions of 2020 contributed to around two-thirds of the total volume of transactions, with these coming largely through the TMT sector (Technology, Media and Telecommunications). Indeed, more than one-fifth of all transactions (80 of 363) and over one-third of the total volume of transactions in 2020 (USD 22.1 billion out of USD 63.1 billion) were accounted for by this sector. “These figures make it clear that the accelerated digitalization caused by the coronavirus pandemic has directly affected the market for mergers and acquisitions,” says Knak.
A special mention should go to the largest deals of the past year, both of which came from the TMT sector: the acquisition of Sunrise by UPC, a subsidiary of Liberty Global, with a deal volume of almost USD 7.2 billion, and the merger of CPA Global, a portfolio company owned by Partners Group, with the US-based Clarivate Analytics (USD 7.1 billion).
While there was a great deal of activity in the Life Sciences and Pharmaceuticals sectors in the Swiss M&A market in 2019, things were more subdued in 2020. These sectors recorded 65 deals in 2019 compared to just 42 in 2020. The transaction volume of these deals plummeted to USD 6.2 billion, which is less than 10 percent of the total reported in 2019 (USD 65.2 billion). The decline in transaction volume can mainly be explained by the fact that 2020 had none of the mega-deals otherwise regularly seen in the pharmaceutical industry.
Over the past year, Swiss companies again acquired considerably more of their foreign counterparts than vice versa. Some 154 transactions (42 percent of all transactions) involved the acquisition of a foreign company by a Swiss firm; in contrast, Swiss companies were purchased by a foreign firm in 84 transactions (23 percent). With 74 deals recorded, the proportion of domestic Swiss/Swiss transactions increased compared to the previous year, accounting for 20 percent of all transactions (up from 16 percent in 2019). Conversely, the number of international transactions with Swiss sellers decreased slightly, down from 59 in 2019 to 51 in 2020. Around 14 percent of all transactions fall under this category.
In spite of the lingering uncertainty in the market – not least due to the emergence of new variants of coronavirus – Knak expects that there will be a moderate development in the M&A market. “Companies appear to have adjusted well to the circumstances. This is particularly reflected in how the market for transactions has recovered relatively quickly since summer 2020. On top of that, mergers and acquisitions are still important from a strategic perspective. Hopes are ultimately centered on the idea that, with the vaccination campaign now underway, we will be able to contain the virus, and the uncertainties in the market will diminish accordingly.”
The M&A expert also expects to see growing momentum in the market, most notably when it comes to e-commerce. New technologies are becoming available to support M&A activities. Improvements in processing power and greater storage capacity mean that transactions can be planned more effectively and processed with increased efficiency, which will make decision-making processes more robust and transparent. At the same time, completely new opportunities for client interaction will develop.