A total of US$896.3 billion in M&A deals transacted in the third quarter—an impressive 141% increase in value compared to Q2. This figure, bolstered by a series of megadeals, means that Q3 deal value surpassed pre-COVID-19 levels—up 32% compared to Q3 2019, when US$677.5 billion in deals was recorded.
Global deal count, while not experiencing as dramatic an increase as deal value, signals a gathering momentum for dealmaking, with a total of 3,505 deals announced. While this figure stands 31% below the number of deals recorded in the same period in 2019 (5,070 deals), it displays a 9% rebound from the 3,505 transactions announced in Q2 2020.
This relatively optimistic picture is in stark contrast to the situation recorded at the end of the second quarter, which saw global M&A value dropping to a ten-year low as a result of the COVID-19 pandemic.
Megadeals back on the table
While the first six months of the year saw a collapse in dealmaking at the top end of the market, Q3 saw a resurgence of megadeals.
There were 33 transactions each worth more than US$5 billion announced in Q3 2020, totaling US$456.2 billion in value. To put this into perspective, there were 32 transactions each valued at over US$5 billion announced in the entire first half of 2020, worth a combined total of US$321.2 billion.
Megadeal activity in the third quarter also signals a return to pre-COVID levels of dealmaking, representing an 83% rise in volume and a 136% increase in value on the third quarter of 2019.
The largest deal announced in Q3—and also of 2020 so far—was the pending US$49.1 billion transaction which—if approved—will see newly formed PipeChina (known formally as China Oil & Gas Pipeline Network Corp.) acquire a number of oil and gas pipelines and storage facilities from PetroChina.
The formation of PipeChina highlights a governmental effort to promote fairer access to the country’s pipeline infrastructure, as well as encouraging investment into the sector.
As part of the reform of China’s oil and gas pipeline system, a group of investors including China Chengtong Holdings, China Reform Holdings and the National Council for Social Security Fund, acquired a 48.74% stake in PipeChina for US$34.8 billion, in the second largest transaction of Q3.
Speaking of China, Q3 2020 posted the second-highest quarterly value in the last 15 years in China (US$185.68 billion), behind only Q4 2015, comprising nearly 13% of the global total. Asia as a whole posted US$294.89 billion in Q3, also the highest since Q4 2015 and comprising nearly 33% of the global total.
US dealmaking gathers momentum
After witnessing a steep decline in deal activity during the first half of 2020, North America saw momentum pick up in Q3. Seven out of the top ten deals of the quarter targeted US companies, highlighting the country’s renewed attractiveness for dealmaking.
A total of 1,142 deals worth US$408 billion targeted US companies in the third quarter—the highest deal value and volume recorded across all regions. This quarterly deal value has already surpassed the first two quarters of the year combined (US$310.3 billion). By comparison, there were just 687 deals valued at $66.9 billion targeting US firms in Q2—the lowest quarterly deal value on Mergermarket record (since 2006).
The largest US deal of the quarter was Marathon Petroleum’s sale of its Speedway retail chain to 7-Eleven, valued at US$21 billion. The all-cash deal—pending regulatory approvals—is expected to complete in early 2021.
The deal will add nearly 4,000 stores to 7-Eleven’s portfolio and enable the Japanese acquirer to grow its market share in the US convenience store market. Speedway’s merchandise sales have stayed resilient despite the pandemic, with reported sales dropping just 4% in the second quarter of 2020.
TMT continues its winning streak
Dealmaking activity in the technology, media, and telecom (TMT) sector continued to perform strongly in Q3, attracting four out of the top ten deals of the quarter. Although volume dropped 23% to 760 deals compared to Q3 2019, value more than doubled from US$134.3 billion to US$301.5 billion.
The two largest TMT deals of the quarter targeted the semiconductor space: Softbank’s US$38.5 billion planned sale of ARM to NVIDIA, and Analog Device’s US$20.3 billion bid for Maxim. Both deals are pending regulatory approval.
These landmark deals highlight how the consolidation drive within the semiconductor space is once again gaining momentum, as the market gradually begins to recover from the initial shock of the COVID-19 pandemic.
Energy sector stages unlikely bounce back
Like the TMT sector, the energy, mining and utilities (EMU) sector saw its total value in Q3 more than double year on year, coming to a total of US$168.6 billion. Volume, however, dropped 23% to 286 deals.
Although the two PipeChina deals—together worth US$83.9 billion—made up a large part of the quarterly total, there were 7 transactions worth US$5 billion or more in total in the quarter, the highest such figure since the first quarter of 2017.
Pharma M&A driven by blockbuster deals
The pharma, medical and biotech (PMB) sector also attracted some notable deals in Q3. Gilead announced its plan to acquire biotechnology firm Immunomedics for US$19.4 billion in a bid to expand its oncology portfolio. Meanwhile, Siemens Healthineers is set to acquire cancer device and software specialist Varian Medical for US$16 billion. The deal will see the German health imaging and medical devices firm strengthen its position in the field of oncology.
In total, there were 346 transactions targeting the sector in Q3, worth US$91.7 billion in total value—a 9% rise in value on the same quarter in the previous year, although volume dropped 20% over that time.
While M&A deal activity targeting the PMB sector plummeted in the first half of the year, such deals signal renewed hope for the sector. Major pharma companies with cash on their balance sheets are still looking to close deals to boost their portfolios and expand market share, despite ongoing uncertainty surrounding the COVID-19 pandemic.
Global dealmakers have a lot to contend with as they move into the final quarter of 2020, including a second wave of the COVID-19 pandemic, burgeoning foreign direct investment (FDI) restrictions imposed by governments across the globe, the US elections, ongoing Brexit negotiations and other stressors.
While not reflective of an even recovery across regions and sectors, the series of blockbuster deals seen in Q3 provides some hope for dealmakers. They indicate that an underlying appetite for deals—particularly in the popular TMT sector—remain. Encouraged by a rally in share prices, deals previously put on hold due to the COVID-19 crisis were put back on the table in Q3. Companies with strong balance sheets seized the opportunity for deals as they saw the chance.
This should be seen as a positive sign for dealmakers, amidst a year characterized by uncertainty.