Our thinking

Against all odds: US M&A 2020

What's inside

US deal activity held up remarkably well in the face of unprecedented uncertainty in 2020, with total deal value in H2 surpassing the previous year

Foreword

Global Head of M&A

After the initial shock of the pandemic, M&A activity rebounded significantly in H2. Nevertheless, challenges remain—despite low interest rates and strong stock prices

The past year has been an exceptionally challenging one for societies and economies globally, and many companies were hit hard by COVID-19 lockdowns and travel restrictions.

The huge uncertainty that gripped capital markets early in the pandemic put equities into sharp decline and dealmaking largely on hold as strategic buyers and private equity (PE) firms turned inwards to support existing portfolios. The challenges posed by remote due diligence and uncertainty around valuations provided further reasons for market participants to hold back from transacting.

After this initial period of disruption, however, deal activity rebounded strongly, with total value in H2 significantly higher than the same period in 2019. Buyers assessed COVID-19 business risks, PE owners provided portfolio companies with the necessary support where required and proceeded to look outwards for opportunities to improve companies through acquisitions.

Low interest rates and extensive government support for the economy have helped to revive deal activity. Resilient companies in industries that fared relatively well through lockdowns—such as TMT, food and beverage, and healthcare—have been able to take advantage of high levels of cash and strong stock prices to execute acquisitions.

The rise in deal activity in the second half obscures a bifurcated market, however. Even as activity at the top end of the market exceeded pre-pandemic levels, M&A in the middle-market remained muted, likely due to greater uncertainty around valuations.

Our overall outlook for the next 12 months is cautiously optimistic. A series of successful clinical trials have led to vaccine rollouts, providing a major boost to close the year. And stock markets have looked beyond the pandemic to crest new highs.

A more stable outlook could spark a resurgence of middle-market deals, as well as continue to encourage deal activity among larger firms.

After a difficult period, there is reason for optimism that conditions in 2021 will support the momentum in M&A markets that started to build in the final quarter of 2020.

US dealmaking robust despite COVID-19

US M&A activity fell precipitously in the first half of the year but picked up again in H2, especially at the upper end of the market

US dealmaking robust despite COVID-19

Private equity stands its ground in 2020

US buyout activity at the top end of the market dropped significantly but exit value held up in 2020

Private equity stands its ground in 2020

Sector watch

Sector overview: TMT and healthcare top the charts

The TMT sector was buoyed by global spikes in demand as the world shifted toward virtual interactions in every walk of life

Sector overview: TMT and healthcare top the charts

Oil & gas dealmaking hit hard by pandemic

Deal activity in the oil & gas sector was severely impacted by the COVID-19 pandemic, as commodities prices plummeted

Oil & gas dealmaking hit hard by pandemic

Technology megadeals shine, while mid-market activity slumps

Businesses and consumers have relied on technology more than ever through the course of the pandemic, supporting strong dealmaking at the top end of the market

Technology megadeals shine, while mid-market activity slumps

Healthcare M&A activity heats up in H2

M&A value in the healthcare sector (incorporating pharma, medical and biotech) stayed relatively robust in 2020, even without the kind of blockbuster deals the sector had become accustomed to seeing in recent years

Healthcare M&A activity heats up in H2

Consumer M&A strong despite COVID

Total M&A value in the consumer sector has dropped only 1 percent year-on-year thanks to several significant transactions in the food industry.

Consumer M&A strong despite COVID

Real estate M&A tumbles, despite bright spots in healthcare and logistics

Real estate portfolios exposed to hospitality and retail assets have struggled through COVID-19 lockdown periods, but healthcare and logistics investments have performed strongly

Real estate M&A tumbles, despite bright spots in healthcare and logistics

Decisions from Delaware

Notable decisions from Delaware courts

2020 saw several decisions from the Delaware courts that will affect M&A dealmaking. We focus on four that may prove especially consequential

Notable decisions from Delaware courts

Conclusion

Five trends to look out for in 2021

The past year has been tumultuous for M&A activity, but with a COVID-19 vaccine rollout underway and pent-up demand among PE firms, the fundamentals are in place for a busy year in 2021

Five trends to look out for in 2021
Oil & gas dealmaking hit hard by pandemic

Oil & gas dealmaking hit hard by pandemic

Deal activity in the oil & gas sector was severely impacted by the COVID-19 pandemic, as commodities prices plummeted

Insight
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2 min read

Although oil prices have recovered from the depths they reached in the spring— when the price of the benchmark West Texas Intermediate crude briefly fell below zero—they remain approximately 15 percent below what they were at the end of 2019.

Faced with headwinds, the oil & gas sector delivered only 118 transactions in 2020, 43 percent below the total for the previous year. Deal value fell 47 percent to US$82.4 billion.

Moreover, the bulk of total deal value was accounted for by just three deals—ConocoPhillips’ US$13.3 billion bid for Concho Resources, Chevron’s US$12.6 billion takeover of Noble Energy and Berkshire Hathaway Energy Company bidding US$9.7 billion for Dominion Energy’s gas transmission and storage assets.

US $82.4 billion

The value of 118 deals targeting the US oil & gas sector in 2020

Consolidation activity

Where deals have proceeded, a primary driver has been to consolidate asset positions and build production scale that is sustainable at lower oil prices. The ConocoPhillips bid for Concho, for example, will form the largest US independent producer, with production capacity of 1.5 billion barrels per day. Concho’s strong balance sheet coupled with soft stock market valuation also informed the rationale for the transaction.

Chevron’s purchase of Noble Energy was also a consolidation play, boosting Chevron’s shale portfolio with the addition of close to 1 billion cubic feet of natural gas reserves. An attractive valuation and minimal competition from rival bidders, given headwinds in the sector, also supported the investment by Chevron.

47%

Percentage decrease in value compared to 2019

Rise in bankruptcies

The prolonged period of low oil prices also led to an uptick in distressed and restructuring situations in the sector, with companies that had increased leverage in favorable lending markets pre-pandemic found to be particularly vulnerable. North American oil & gas bankruptcy filings over the first three quarters increased from 33 in 2019 to 40 in 2020. Although this has not yet led to a marked increase in distressed M&A deals, it may in 2021, as clarity on valuations emerges and investors eye a hoped for transition to post-pandemic life.

Top oil & gas deals 2020

1: ConocoPhillips acquired Concho Resources for US$13.3 billion

2: Chevron acquired Noble Energy for US$12.6 billion

3: Berkshire Hathaway Energy acquired a number of gas transmission and storage assets from Dominion Energy for US$9.7 billion

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP

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