May 6, 2020

Deal Terminations: “Things Fall Apart. . .”

It’s rare that M&A news has me waxing poetic, but yesterday’s announcement that L Brands and Sycamore Partners decided to end their deal, coupled with the news that two billion dollar deals had fallen apart on that same day, has awakened my inner William Butler Yeats: “Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world. . .”

Overdramatic?  Of course.  Still, shortly after the Covid-19 crisis burst into flames in the U.S. in March, Bloomberg Law published an analysis indicating that deal terminations were actually lower than their prior year levels, and asking the question “where are all the M&A deal terminations?” Any hopes that M&A might successfully swim against the current were dashed in April, when Bloomberg published an updated analysis that answered its original question about deal terminations with a resounding “they’re here!”

These recent terminations are further indication that the deal market has fallen on hard times – and according to a recent Datasite & Mergermarket report on Q1 M&A activity, we’re unlikely to see an uptick in M&A in the near future:

Given the downturn in deals both for corporates and for sponsors, morale among dealmakers is unsurprisingly at a low ebb. Though some deal-related communications can and are being conducted virtually, this is a major departure from the norm. And while deals already in the works could be concluded, all new business is essentially on pause. “We’re not going to be signing anything in the midst of this tornado,” said a managing director at a private equity firm to Mergermarket.

The report says that the U.S. is likely to go through a period of severe economic upheaval which would have a knock-on effect for M&A.  It suggests that the M&A and financing markets may well remain on hiatus for at least a few months.  When you add in the fact that even if we get a break and the pandemic subsides in a few months, we’ll be in the middle of a presidential election campaign – which is not a great time to make a deal.

John Jenkins