Global deal activity in the FS sector tumbled in 1H20 seeing a decline of 11.5 percent and 26.6 percent, respectively, in volume and value compared to 1H19. Investment management saw the largest dip in volume (15.7 percent) thanks to general capital market volatility. In terms of value, insurance in particular saw a significant spike (273.6 percent), driven primarily by one mega deal in Europe while activity in the banking and investment management sectors remained subdued. The dip is attributed to weakening investor sentiment caused by COVID-19 resulting in delay, renegotiation or termination of deals.
Domestic deals contributed 76 percent of total FS deals in 1H20. Mega domestic transactions (>US$ 15bn) were witnessed in 1H20 mainly in banking and insurance. Though overall cross-border activity declined, buoyancy in intercontinental deal activity was seen with a 2.6 percent increase in volume with active bidders mainly from the US (#70), the UK (#18), Australia (#8) and the Cayman Islands (#6).
While PE firms reevaluate the business landscape and focus on the health of their current portfolio companies, global PE deal activity is decelerating, down by 36 percent in 1H20 compared to 1H19. Payments, leasing and financing, and asset/wealth management were the most targeted sub-sectors in 1H20. Private equity investors are now in a familiar position, sitting on an abundance of dry powder which is expected to fuel PE deal making going forward.
Among the top 15 FS deals for 1H20, banking continued to dominate the overall deal landscape, accounting for 67 percent of top transactions. Insurance sector deals accounted for 27 percent while investment management accounted for 6 percent.
The average deal size for the top 15 FS deals was approximately US$7.6 bn in 1H20 — mega deals were present in spite of the COVID-19 pandemic with four high-value transactions announced (value >= US$10 bn) in banking and insurance. Domestic deals remained prevalent with 80 percent of the largest deals while cross-border transactions were more subdued, accounting for 20 percent of large transactions during the period. Merger/consolidation remained a key deal rationale. On the buy-side, bidders from North America (particularly, the US) and Asia (particularly, China) remained active.
The US, China, the UK and India remained the largest transaction markets in 1H20, similar to 1H19. They were joined by Canada, however, deal volume remained relatively flat for the nation compared to last year.
Cross-border deal activity was subdued due to travel restrictions which impacted buyer/seller interactions. Moreover, unlike 1H19, PE deal activity cooled due to tightening credit availability and the widening perception of the value gap between investors and business owners. High-value transactions were scarce in 1H20 with even large transactions topping out at only US$1-2 billion. In 1H20, alternative strategies such as joint ventures and distressed debt grew in popularity. Opportunistic investing will likely fuel deal volume in the second half of 2020.
Total FS potential assets (approx. 500) as at June 2020:
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