PWC report: 50% decline in merger transactions in 2020 – capital market

PwC Israel published its annual transaction report for 2020. The report, which summarizes the mergers and acquisitions of Israeli companies closed this year (as acquirers or as acquirers), found that there was a 50% decrease in the total volume of transactions compared to last year, excluding A $ 6.9 billion Mellanox deal. The average transaction value decreased in 2020 to $ 154 million ($ 256 million including Mellanox).

According to the firm, the total number of transactions in 2020 amounted to 123 transactions, a decrease of about 26% compared to 2019, which was a record year in terms of number of transactions. However, the picture only becomes clearer when the number of transactions is segmented at a quarterly level, and between foreign and domestic investors. Looking at the quarterly segmentation, it can be seen that the first half of 2020 continued to show a level of activity in line with the strengthening trend of recent years, and starting in the third quarter, the volume of transactions fell by over 50% compared to previous years. When the number of transactions from foreign investors fell from an average of about 20 transactions in the third quarter of this year, to only 6 transactions.

According to the report, for the first time since 2012, the rate of transactions greater than $ 100 million is smaller than in previous years. The share of transactions with a value of less than $ 100 million shows an increase to 70% compared to 58% in 2019, and in fact is the first increase in transactions. This has been the case since 2012. Transactions with a transaction value of $ 1 billion or more stabilized at 5 transactions, an increase over 4 transactions in 2019. However, examining the distribution of transactions, 4 of the 5 closed during the first half, and a fifth transaction closed in the fourth quarter.

PWC notes that this year a negative record was recorded in the volume of Israeli investments abroad as part of the transformation of the M&A market into a regional market sponsored by the Corona. Excluding Mellanox. At the same time, the volume of transactions by Israelis abroad fell to only $ 333 million, a negative nine-year high (compared with an eight-year average of $ 2.5 billion).

On the other hand, a nine-year positive record of Israeli investments in Israel was recorded in the total volume of transactions in the amount of $ 3.4 billion, which is an increase of more than twice as much as an eight-year average of about $ 1.5 billion. These trends are in line with the global trend of establishing regional markets and players conducting regional transactions, under the auspices of the Corona which has led to the blocking of physical and mental boundaries.

And what will happen next year?
According to the PWC report, existing market conditions in the global economy will restore the M&A market at a faster rate than previous crises. According to CPA Liat Anzel Aviel, Partner and Head of Transaction Services at PwC Israel: “After a continuous decade of global growth since The crisis of 2008, 2020, brought with it the much-discussed economic crisis of recent years, however, by the nature of economic crises, few could predict the type and source of the crisis, which was certainly very different in nature from the recent crises experienced. More than the Great Recession a decade earlier, and unlike the Great Recession included a synchronized global response that did not pass over any country.

“However, there is an expectation of a faster recovery from the crisis in 2008, which is already beginning to show its signs in global markets, including record pricing and issues in the field of technology, and is also expected to be reflected in M&A markets.” Cheap fundraising is a supportive tool for rehabilitating the economy, and will enable the acquisition of acquisition opportunities for companies with financial strength that will be able to take advantage of this. More, make more transactions during the corona period compared to last year.

These global effects did not go unnoticed by the local market in Israel, which experienced a sharp blow from the first closure, and the abandonment of foreign investors. Looking at market trends, we anticipate that the return of global M&A markets and especially the US as soon as possible will return to support active local activity as early as 2021 combined with the strengthening trend of local investors over the past year ”.