M&A Activity Picks Up Amidst COVID Vaccine News, US Election

Positive news of the successful trials of three COVID-19 vaccines and the results of the election in the U.S. in early November have encouraged M&A activity. Global dealmakers are revisiting proposed M&A activity to consider larger transactions, according to bankers and legal advisers interviews by the Financial Times.

Statics show that companies across the world announced almost $40bn worth of deals on Monday, November 16th alone. This is a strong signal that CEOs are seeking to take advantage of inexpensive debt or spend savings from the coronavirus crisis. The intend to execute strategic mergers and acquisitions previously on hold.

M&A Activity COVID
M&A Activity COVID

The PNC Financial Services Group, Inc. and the Spanish financial group, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) announced this week that they’d signed a definitive agreement for PNC to acquire BBVA USA Bancshares, Inc., including its U.S. banking subsidiary, BBVA USA. The price tag on the deal is $11.6 billion. Cash on hand will fund the deal in a fixed price structure.

Houston-based BBVA USA Bancshares has approximately $104 billion in assets. The bank offers commercial and retail banking services through its banking subsidiary BBVA USA.

BBVA USA Bancshares has nearly 650 branches in Texas, Alabama, Arizona, California, Florida, Colorado, and New Mexico. When combined with PNC’s existing locations, the company will have a coast-to-coast franchise. Its presence will extend to 29 of the 30 largest markets in the country. The acquisition creates the fifth-biggest bank by assets in the U.S.

The companies announced the M&A Activity on the same day that news hit that Moderna’s vaccine against COVID-19 is strongly effective, creating a positive buzz about the potential of controlling the global pandemic.

Just a week earlier, Pfizer and Germany’s BioNTech announced similar good news about its vaccine testing: a final analysis shows the company’s coronavirus vaccine is 95% effective and has no safety concerns.

“​Even though we’ve had a recent spike in [Covid-19] cases, we have in effect put a floor on the downside case,” William S. Demchak, PNC’s chairman, president and CEO said to the Financial Times​. “And of course, both the Fed and ​the​ US government responded forcibly with fiscal and monetary stimulus.” ​

M&A Activity Home Depot
M&A Activity Home Depot

Home Depot Inc. announced that it had agreed to buy HD Supply Holdings Inc. for about $8.7 billion. This reunites Home Depot with a unit it sold off in 2007. The DIY home improvement titan seeks to bolster its ability to distribute industrial products amid the pandemic. The deal gives Home Depot a larger footprint in the professional contractor side of the business.

HD Supply is a wholesale distributor of electrical, plumbing, janitorial and other supplies. It has about 44 distribution centers in the United States and Canada. It recorded sales of nearly $6 billion in its latest fiscal year.

The transaction, which will be funded by cash on hand and debt, is anticipated to be completed in Home Depot’s fiscal fourth quarter, which ends January 31st.

In more M&A activity, Canada’s Endeavour Gold announced a deal to buy rival Teranga Gold in a $1.86bn all-stock deal.

Toronto-based Barrick Gold, which holds 11.44% of Teranga shares, supported the deal. In fact its CEO has been asking for consolidation to rid the playing field of weaker players.

Endeavour shareholders will get 66% of the combined entity, leaving Teranga shareholders with the other 34%. Teranga will be given three spots on Endeavour’s seven-member board.

The enlarged Endeavour said it would seek to list in London in 2021.

Many observers say that M&A activity is seeing the effects of Joe Biden’s win in this year’s U.S. presidential race.

Although there’s said to be no correlation between M&A and U.S. election years, one expert opined that there is a substantial correlation to uncertainty. Less uncertainty means better days for companies that want to get the full benefit of an acquisition.

In addition, dealmakers have also been clamed by the possibility of a divided government, with Democrats controlling the presidency and the House, and perhaps Republicans retained control of the Senate after two runoff elections in Georgia in January. Some executives have been concerned about the prospect of a Democratic sweep, which may result in more regulations or greater corporate taxation.

The last three months of a year have historically been busy in M&A activity, as many American and European dealmakers want to get deals done by the end of the year.

This year, many companies are attempting to make up ground after the pandemic brought deal-making to a standstill.

Thus far, the fourth quarter of 2020 has been the third strongest for M&A in 20 years. As of the start of October, $612bn of deals have been done. This is an increase from $461bn during the same period in 2019 and $491bn in 2018.

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.

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