Deals are born, and deals die. Deal terminations—which take place after a definitive agreement has been entered into by the parties—are a natural part of the mergers and acquisitions ecosystem. With the new coronavirus market rout causing companies’ stock prices to drop, one might have expected deal terminations to be on the rise. But that isn’t what we are seeing…yet.
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.
This month to date (March 1-17), there have been 10 global M&A deal terminations. For the same period in 2019, 2018, and 2017, there were 25, 24, and 28 deal terminations, respectively.
Of the 10 deals terminated in March to date, all were deals that were announced in 2019. Five of the 10 terminated deals involved Chinese targets.
There are currently 10,802 pending M&A deals with a total value of $1.4 trillion that were announced in 2019, before the new coronavirus outbreak.
It is hard to imagine that a significant portion of these pending deals, including their underlying valuations, which were negotiated prior to the virus entering the scene, haven’t been rocked by the pandemic. It is possible that we will see a delayed wave of terminations once the dust settles.