What’s Going On Here?With coronavirus-hit companies dropping out of deals left, right, and center, investors could be about to miss out on the next big stock market duo. What Does This Mean?Xerox, the once-mighty printer pusher, scrapped its long-time effort to acquire technology hardware rival HP this week. The former would’ve had to borrow a lot of money to buy the latter – Xerox is worth $4 billion to HP’s $21 billion – and while banks were happy to lend, the printer company might’ve felt the deal was too risky.
More than 300 mergers and acquisitions totaling almost $100 billion have been shelved since November. A few of those are in the consumer staples sector, whose products – namely food, drinks, and household goods – typically see ongoing demand even when the economy slows. So if they’re not attracting deals, it makes sense other companies won’t either. Why Should I Care?For markets: Not today, coronavirus!
At least the agreed merger between telecoms rivals T-Mobile US and Sprint went ahead this week – even as coronavirus scuppered their plans to sell investors $23 billion worth of debt to finance the deal. Instead, 16 banks stepped in to ensure the merger went ahead. Their willingness to lend might be down to the “defensive” nature of telecoms companies, whose long contracts generally make their future cash flow predictable and transparent. That means investors can be slightly more confident they’ll get paid the interest they’re owed on their debts – which isn't so common in other industries.
The bigger picture: Get ‘em while they’re cheap.
Most analysts expect deals to pick up again once the global economy’s on more solid footing. In the meantime, private equity firms – which have an estimated $2.5 trillion of cash on hand – might jump into action. They stand to benefit from larger future profits if they buy a firm at a lower valuation right now, cut costs while boosting growth, and sell it on after everything’s blown over (tweet this). | 