Dealmaking across the world is being hampered by the spread of the coronavirus, grounding jet-setting investment bankers and threatening a decade-long boom in mergers and acquisitions.
One adviser who usually flies 250,000 miles (400,000 kilometers) a year said he’s cancelled all upcoming trips to Asia, Europe and the Middle East. Five transactions his firm was working on have been put on hold, including one where a member of the other party’s deal team tested positive for the virus.
The volume of M&A announced through the end of February was down 27% to $419 billion, the slowest start to a year since 2013, data compiled by Bloomberg show.
In some cases, market volatility is causing sellers to temper their price expectations. After months of on-and-off negotiations, Thermo Fisher Scientific Inc. agreed this week to buy Dutch medical testing firm Qiagen NV for about $10 billion.
While Thermo Fisher’s offer of €39 per share was higher than previous proposals, according to people familiar with the matter, it was still well below the amount many analysts were expecting. The increased uncertainty “actually allowed us to transact at a price we both felt comfortable with,” Thermo Fisher chief executive officer Marc Casper said in an interview Tuesday.
Fears about the virus’s effect on the global economy have driven the S&P 500 lower in eight of the past 10 trading sessions, despite Tuesday’s emergency rate cut by the Federal Reserve. The disease, first identified in China, has now spread to at least 76 countries and regions and resulted in nearly 3,300 total deaths.
Seven & i Holdings Co., owner of the 7-Eleven convenience store chain, scrapped plans to acquire Marathon Petroleum Corp.’s Speedway gas station business for $22 billion, people familiar with the matter said Thursday. That deal would have been the world’s biggest so far this year.
The Japanese suitor decided not to proceed due to concerns over valuations, with the coronavirus outbreak one of the factors that impacted negotiations, one of the people said. Another management team running a multibillion-dollar auction process decided it was better to lose a potential bidder than risk meeting a team from China—with appointments cancelled while planes were already in the air.
In another instance, an US industrial firm looking to buy an asset in China put the $1 billion-plus deal on pause because the buyer didn’t want to proceed without a site visit and on-the-ground management meetings.
Some effects have been even more extreme. One adviser found himself quarantined twice after trips to Hong Kong and then Italy, which has the most cases in Europe.
Still, the forced isolation might not have made much difference to his schedule—he said most corporate clients aren’t keen to meet anyone face-to-face, hindering their ability to pitch deals or conduct sensitive negotiations.
The coronavirus “has the possibility of creating a shock that triggers economic softness,” said Cary Kochman, co-head of global mergers and acquisitions at Citigroup Inc. “That could be an enormous inhibitor to deals in the short term,” he said, even though other M&A fundamentals remain unchanged.
Contingency planning is also making its way into merger agreements. Sellers are now adding exclusions for the potential impact of the virus to avoid bidders citing a disease outbreak for changing the terms or bailing from an agreement, one adviser said. Morgan Stanley’s $14.5 billion acquisition of E*Trade Financial Corp. specifies that any risks related to the outbreak are already factored into the price.
