The top M&A deals of 2020. For companies looking beyond the current crisis and trying to invest in future growth, …
The top M&A deals of 2020.
For companies looking beyond the current crisis and trying to invest in future growth, the pandemic offers the opportunity to acquire companies whose future is uncertain or whose financial position is precarious. Now may be the time for big companies to get bigger and widen their trenches against competitors, or for small competitors to team up against bigger competitors – but that’s easier said than done. Deals that looked like no-brainers prior to the pandemic have been put on hold or canceled entirely while unforeseen circumstances have brought together unlikely alliances. Let’s take a look at the highlights of the mergers and acquisitions completed during the pandemic, the failed deals, and those that may still be taking place.
L brands (ticker: LB) and Sycamore Partners
Deal Status: Canceled on May 4th
L Brands’ plan was to outsource the Bath & Body Works brand to an independent company and sell the trailing Victoria’s Secret / Pink brands to the highest bidder. That bidder was Sycamore Partners, a private equity firm that agreed to acquire 55% of the womenswear business in February for $ 525 million. The deal was great for L Brands, which had taken on a heavy burden of debt when Victoria’s Secret was struggling to keep up with the times in a tough retail environment. But when L Brands closed its stores as well as its online platforms after consumers were blocked, Sycamore took this as a breach of contract and decided it wanted to get out. Both companies have left the business and left L Brands to find their own way forward.
T-Mobile (TMUS) and Sprint
Deal Status: Completed April 1st
The third largest wireless operator in the US has just gotten bigger – after more than two years of skipping through regulations, T-Mobile and Sprint closed the $ 26.5 billion deal. The new T-Mobile (the Sprint name is deleted) offers Verizon (VZ) and AT&T (T) a stronger rival as 5G networks roll out globally and a new era in wireless wars begins. In recent years, T-Mobile has evolved into the postpaid carrier du jour, while Sprint’s focus on the mid-range spectrum can give the combined company a head start as 5G becomes the new normal. With pricing set for the next three years (as per the company’s agreement with regulators), customers may take a second look at the new T-Mobile.
E-Trade (ETFC) and Morgan Stanley (MS)
Deal Status: Received antitrust approval in March and is expected to close in the fourth quarter of 2020
In October 2019, Charles Schwab (SCHW) initiated a race to the bottom by cutting his commissions to zero and forcing his competitors to do the same or risking being left behind. Given that 17% of E-Trade’s net income came from commissions, the price war drove the discount broker into crisis – until Morgan Stanley announced on February 20 that it would acquire the broker for $ 13 billion . The deal made sense for Morgan Stanley at the time as it complemented its wealth management business and added 5.2 million e-trade users to its customer base, which the company can sell with its high quality advisory products. And given the surge in retail investment we’ve seen since the pandemic began, this deal seems to have sweetened up over the past few months.
SoftBank and WeWork
Deal Status: Go to court
While it wasn’t an acquisition in and of itself, SoftBank’s $ 3 billion tender deal with WeWork would have got around 80% of the shared workspace company if SoftBank had already spent billions on WeWork. However, both companies already had problems. WeWork wasn’t the only investment SoftBank had put large sums of money into with little to show for, and investors weren’t happy. In the meantime, WeWork had suffered a number of setbacks, including the failed IPO and the fall of CEO Adam Neumann. Then the pandemic started shutting down offices around the world and suddenly the idea of shared workspaces seemed downright dangerous. SoftBank decided enough was enough and went out of business in early April – and while SoftBank will be fine, WeWork’s future is suddenly very dubious.
Amazon.com (AMZN) and AMC Entertainment (AMC)
Deal Status: according to rumours
The country’s largest cinema operator has had some difficult months with lockdowns holding customers at home. But AMC shares got a shot in the arm in late May because it was rumored that Amazon was planning to take over the company. Amazon doesn’t spend money on ticket and popcorn sales, but a stronger theatrical presence could attract more subscribers to Amazon’s Prime Video service. At AMC, more than $ 4.8 billion in debt weighs on the company’s balance sheet, and losses continue to grow the longer customers stay home. Even if reopenings begin across the country, the cinemas are unlikely to be at full capacity during the summer blockbuster season. And as of April, AMC will only have enough cash to keep the company going through November.
Uber Technologies (UBER) and Grubhub (GRUB)
Deal Status: Canceled
Grocery delivery has always been a war of attrition as the cost of the delivery service often outweighed the profits of Uber or Grubhub. But with Uber’s hail business decimated by the pandemic, UberEats was a single bright spot the company wanted to expand to. By partnering with Uber, Grubhub could capitalize on the economies of scale that Uber’s wide reach would bring and allow it to stop spending massive amounts of money to overtake its biggest rival, DoorDash. In the end, the management of the two companies was unable to reach an agreement. Instead, Grubhub decided to merge with European delivery company Just Eat Takeaway, which itself is the result of a recent merger between a UK and Dutch delivery service. As for Uber, delivery competition has gotten a lot tougher.
AstraZeneca (AZN) and Gilead Sciences (GILD)
Deal Status: Unlikely
The pharmaceutical industry has always been a hotbed of mergers and acquisitions, but a link between AstraZeneca and Gilead would be the biggest deal in the history of the industry. The idea behind the consolidation is simple: Both companies are working on a large virus vaccine and neither want to lose the massive profits that a vaccine would bring. Gilead’s antiviral remdesivir has emerged as a frontrunner in the vaccine race while AstraZeneca prepares to manufacture a vaccine developed by researchers at Oxford University. The conversations between the two companies have been informal, and so far nothing has come of it – but even the possibility of a merger that would create the world’s largest pharmaceutical company by market value is worth considering.
The top M&A deals this year:
– L Brands (LB) and Sycamore Partners
– T-Mobile (TMUS) and Sprint
– E-Trade (ETFC) and Morgan Stanley (MS)
– SoftBank and WeWork
– Amazon.com (AMZN) and AMC Entertainment (AMC)
– Uber Technologies (UBER) and Grubhub (GRUB)
– AstraZeneca (AZN) and Gilead Sciences (GILD)
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The 7 Biggest Rumors, or Real M&A, of the Year originally appeared on usnews.com