March 18, 2020

Where are All the Busted Deals?

Given the havoc that Covid-19 has wreaked on the world economy, you might have expected to see a spike in terminations of pending deals during the current month. But according to this Bloomberg Law article, that hasn’t happened. To the contrary, this excerpt says deal terminations are way down:

While a faltering market might normally cause deal failures, the data do not show that trend at this point. Thus far, March deal terminations are about one-half to one-third of prior years. Are parties putting their deals on hold? Are they renegotiating? We do know that companies are rushing to put out a variety of fires; perhaps deal parties that are doomed to ultimately terminate, either due to the pandemic or for other reasons, just don’t have the bandwidth to effectuate termination right now.

The article says that through March 17, 10 global M&A deals were terminated. During the same period in each of the three preceding years, an average of 26 deals bit the dust. Of those 10 terminated deals, five involved Chinese targets.

While the article suggests a lot of reasons why terminations may be down, I think it overlooks the most obvious one – a lot of companies are the proverbial “deer caught in the headlights” at this particular moment.  Events are moving so fast that many businesses are still trying to figure out exactly what’s happening to them. Deciding what to do about it comes later.

John Jenkins