M&A In The Wake Of Corona

Baruch Lev
By Feng Gu and Baruch Lev
Mergers & acquisitions (M&A) activity came to a screeching halt early this year. Most acquisitions planned in the late 2019 (like Charles Schwab’s (SCHW) intention to acquire Ameritrade (AMTD), or Xerox’s (XRX) plan to acquire HP (HP)) were much delayed until market outlook improved or abandoned altogether, and new ones are rare. (United Technologies’ (RTX) acquisition of Raytheon for $74 billion, announced on April 3, 2020, was an exception.) However, active economies and capital markets are always characterized by a thriving M&A activity.

So it’s not surprising that, as the economy is recovering, we see M&As on the rise. The third quarter of 2020 saw deals worldwide surpass $1 trillion compared with $763 billion in the prior-year period, and transactions in the U.S. reached $531 billion, up from $140 billion in the second quarter 2020 (Dealogic Ltd.). But will this pace of M&A continue? And more important, what types of deals will be executed? Moreover, will investors benefit from those M&As? Historically, M&A deals often lead to shareholder value destruction.

Prior to COVID-19 we assembled, for research purposes, the largest and most detailed M&A sample available: 36,000 deals over the 1978-2018 period. We have used this sample to predict from past post-crises deals how will M&A activity look in the near future. 

Read the full Seeking Alpha article.

Baruch Lev is the Philip Bardes Professor of Accounting and Finance.