Investors Back European Buyers to Pick Deals in Pandemic
(Bloomberg) -- Investors have placed greater faith in the dealmaking prowess of European company executives than their American counterparts this year, with management teams under even more pressure to buy wisely in the face of the coronavirus pandemic.
The share prices of European acquirers outperformed the regional MSCI index by 10.2 percentage points in the first half of 2020, according to a report released Monday by Willis Towers Watson Plc and Cass Business School. There was more modest outperformance of 3.1 percentage points in Asia Pacific.
In contrast, the stock of North American companies that announced acquisitions underperformed the regional index by 7.2 percentage points, with fewer transactions completing there than in any half-year in more than a decade.
“Economic uncertainty caused by the pandemic seems to have had a far greater negative impact on the ability of U.S. companies to initiate and successfully complete M&A negotiations,” Jana Mercereau, head of corporate mergers and acquisitions for Great Britain at Willis Towers Watson, said in a statement.
Shares in Uber Technologies Inc. and Berkshire Hathaway Inc. bucked that trend Monday -- at least in the short term -- after each company announced a multibillion dollar deal. Uber's stock rose as much as 8.2% on its plans to acquire food-delivery platform Postmates Inc. for $2.65 billion, while the Class A shares of Warren Buffett's conglomerate climbed 2.8% after it said it would buy gas pipeline and storage assets from Dominion Energy Inc.
Added Risk
While it's not unusual to see a buyer's stock fall after sealing a takeover as the market weighs its financial impact, the economic uncertainty brought on by Covid-19 has added another risk factor for investors to digest.
“Dealmakers already faced uncertainty, including trade disputes, the threat of global recession, the rise of shareholder activism and a U.S. presidential election on the horizon, making the deal performance and volume in some markets even more impressive,” said Mercereau.
The coronavirus pandemic has dragged the value of global M&A to its lowest level since the depths of the eurozone debt crisis, data compiled by Bloomberg show. While there have been falls across all major sectors in the Americas, advisers have found some bright spots in Europe and Asia Pacific. Bankers have predicted that the impact on business activity will force company CEOs into more strategic acquisitions in the second half.
“What previous crises do tell us is that there will be opportunities to make deals,” said Mercereau. “Activity, partly driven by distressed M&A and non-core divestitures at bargain prices, will become more selective.”
Willis Towers Watson itself is the subject of a roughly $30 billion takeover offer by Aon Plc, in one of the largest M&A deals announced this year. Aon shares have fallen 8.1% in 2020, giving the company a market value of $44 billion, while the MSCI North America Index is down 2.7% over the period.
©2020 Bloomberg L.P.
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