(Bloomberg) — Dead, delayed, renegotiated — at least $87 billion worth of deals have been thrown into chaos this year in the midst of the world’s economic and pandemic upheaval.
The unprecedented disruption in mergers and acquisitions has swept across a myriad of industries, from travel, retail, real estate and energy to even seemingly sheltered sectors such as finance and technology. In dollar terms, dealmaking has slumped by more than 70% in the U.S. and some 55% globally compared with a year ago, according to data compiled by Bloomberg.
The weak M&A environment — the $199 billion in deals in April, May and June was the lowest since at least 1998 — underscores how corporate executives have retreated to the sidelines in the face of the drastic change in economic outlook. The only positive sign is that deals started to creep up in June, albeit from a weak prior month.
“This is a major seismic shock,” said Mark Shafir, global co-head of M&A at Citigroup Inc. “It feels like there’s more disruption this time than I recall in the financial crisis 12 years ago.”
Here’s a look at the various ways deal-making has come to a halt.
More than 10 agreed deals worth about $20 billion have been terminated by mutual consent by buyer and seller. Woodward Inc. and Hexcel Corp’s abandoned $6.4 billion merger was the biggest announced deal to be called off. The transaction would have created one of the world’s largest aerospace and defense suppliers.
The latest significant addition to the list is Ally Financial Inc., which last week terminated its $2.65 billion deal to buy the subprime credit card lender CardWorks Inc., citing “unprecedented economic and market conditions resulting from the Covid-19 global pandemic.”
Another dead deal in the financial services area: Texas Capital Bancshares and Independent Bank Group agreed to abandon their $3.1 billion merger in May. The lenders’ boards pointed to the “significant impact of the Covid-19 pandemic on global markets and on the companies’ ability to fully realize the benefits they expected to achieve through the merger.”
In Court Fights
At least 15 deals worth more than $20 billion are in dispute as buyers and sellers argue over the future of their transaction.
The latest is mall landlord Simon Property Group Inc., which wants to abandon its $3.6 billion deal for rival Taubman Centers Inc. The pair announced a merger in February, a few weeks before the coronavirus shut down much of the U.S. economy, forcing stores to close as shoppers stayed home under lockdown orders.
Simon this month said it wants to scrap the tie-up because Taubman breached the merger agreement by not taking steps to mitigate the damage from the pandemic. Taubman is holding firm, accusing Simon of “a classic case of buyer’s remorse.”
The biggest deal in dispute before Delaware courts remains South Korea’s Mirae Asset Global Investment Co.’s $5.8 billion purchase of 15 luxury hotels from China’s Dajia Insurance Group. The portfolio includes the JW Marriott Essex House, overlooking Central Park in New York City, the Westin St. Francis in San Francisco, Loews Santa Monica Beach Hotel, and the Four Seasons in Jackson Hole, Wyoming. Dajia is suing Mirae to try to force the deal through.
And in May, WeWork co-founder Adam Neumann sued the company’s biggest investor, SoftBank Group Corp., for its decision to withdraw a $3 billion investment in the workplace provider. The investment was part of a rescue package agreed after WeWork’s initial public offering was shelved last year.
A handful of deals are in dispute but haven’t yet reached litigation stage. Britain’s Cineworld Group Plc. is backing away from its C$2.15 billion ($1.6 billion) purchase of Canada’s Cineplex Inc., saying the target breached the terms of their merger agreement and was unwilling to correct the situation. Cineplex has threatened litigation.
It’s a similar situation for Boeing Co. and Embraer SA, which had agreed on a $4.2 billion tie-up in January last year. In April, Boeing said it would abandon the deal, weeks after Chief Executive Officer Dave Calhoun warned that the company would need to adjust to a “new reality” as travel demand evaporates. Embraer has said it would seek damages.
More than $6 billion worth of deals have been renegotiated this year, with engineering services company BorgWarner Inc.’s $3.3 billion transaction for Delphi Technologies Plc the biggest. BorgWarner in March said that Delphi’s decision to tap out its credit line without permission breached their agreement. The companies in May agreed to new terms for their deal, with shareholders of automotive parts maker Delphi taking a small cut to the ownership ratio initially proposed. The deal was approved by shareholders last week.
After a campaign that lasted more than six months, Xerox Holdings Corp. decided to scrap its $35 billion hostile bid for HP Inc., saying the COVID-19 pandemic made the macroeconomic and market outlook too uncertain.
This is just one of a number of transactions dealmakers say have been put on ice — some less publicly — by companies waiting for the world to ride out the health crisis. They are hopeful for the second half of the year, predicting at least some of those deals will come back as the economy recovers.
One bright spot: a small recovery in M&A activity in June, compared with declines in both April and May. Volumes globally climbed 87% to $93.3 billion as of June 26, the worst June since 2002.
©2020 Bloomberg L.P.