Love in the time of cholera

by Brenon Daly

The coronavirus hasn’t infected the tech M&A market. At least not yet. Even as business around the world reels from the deadly outbreak, acquirers in February announced a surprisingly large number of deals, including a surprisingly large number of big deals. In February spending on tech and telecom rose to $42bn, a 40% uptick from this year’s opening month, according to¬†451 Research’s M&A KnowledgeBase.

The increase in tech M&A spending in the just-completed month stands in sharp contrast to the severe declines in most every other market. February’s final week on the US equity market was particularly brutal, with stock prices posting their biggest losses since the start of another global pandemic, the Credit Crisis in 2008. The decade-long bull market, which has helped support the recent record M&A run, officially entered ‘correction’ territory as February closed.

Concerns over the impact of the coronavirus, which has infected nearly 100,000 people and killed some 3,000 of them, has heightened as the virus has spread. According to an analysis of financial reports in S&P Capital IQ, the word ‘coronavirus’ appeared in more than 1,900 corporate and event transcripts in February. That’s fully 10 times the number of mentions of the virus in January.

Of course, any slowdown in the M&A market due to the epidemic will take several weeks (if not months) to fully show up in activity levels. Virtually all deals announced in February had already closed several weeks prior, before worries about the coronavirus had snuffed growth rates and halted expansion plans around the globe. And our M&A KnowledgeBase shows that there were several large prints in February, including nine deals valued at $1bn or more. February’s level basically matched the record monthly pace for big-ticket transactions set in the banner year for tech M&A of 2018.

However, much like the disruption to the supply chains, which Apple and Microsoft (among many other tech companies) have said will hurt their future business, the full impact of the coronavirus on the tech M&A market will likely crimp activity throughout the coming months and years. As a historical comparison, our data shows that spending on tech deals only recovered to pre-Credit Crisis levels four years after that recession officially ended.

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Source: 451 Research’s M&A KnowledgeBase
Posted in M&A