Uber / GrubHub - First of Many All-Stock Deals?

Saw on bloomberg that uber made an all-stock takeover bid for grubhub. Obviously uber doesn't have the cash reserves to make a cash bid, but I'm wondering if we'll see a lot of all-stock takeovers in the next few months, spurring some more activity in the M&A markets? FT folks - do you see a strong M&A pipeline for May / June / July?

 

Do I see a strong M&A pipeline? No. M&A is having and is going to have an awful year, maybe the worst in a decade.

Will the vast majority of large cap deals that do happen be all stock? Absolutely. Valuations are out of whack currently and they don't reflect fundamentals. No board is taking a cash bid at the depressed levels many companies are trading at unless they are genuinely distressed. And for the few winners we've seen, the multiples don't make sense for a cash bid either. Relative value deals where you can share in the upside of equity levels returning to normal and an economic recovery is the one way to still transact but get rid of some of those valuation issues.

 
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Depends a bit on where you are focused / what group you are in, but as a general rule deal flow has fallen off a crater for a lot of groups. This is especially true in the large cap / transformative M&A market. Oil and gas and power still have a lot going on, but it's mostly related to restructuring. Healthcare is still very busy, especially in biotech. TMT and FIG are drying up - but companies want to be positioned to act when things go back to normal, which means they are still engaging but nothing is likely to happen in the short to mid term. Consumer is hit or miss, depending on the sub vertical and how hard it’s hit.

The mid market has held up better as sponsors look for deals, but depending on your group and your bank you may not spend a lot of time in that space. And quite frankly the companies moving forward with sale processes now are not the best companies, so the deals are harder to get done.

The unfortunate fact is the whole M&A market is likely to have a ~40-60% YoY decline and all groups will be hit, though to varying degrees. The question is how quickly do we pick up and can 2021 be a solid year or does it take longer for companies to reengage.

 

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