Chalk mergers and acquisitions (M&A) up as another casualty of the novel coronavirus pandemic.
According to GlobalData, there were some 253 M&A deals with a transaction value of $50 million or more in the first half of 2020. That’s 40% below the level during the first six months of 2019.
The total transaction value of M&A deals so far this year has been $217 billion, a 24% decrease from the $285 billion worth of deals executed in in the second half of 2019, and 51% down from the same period a year ago.
Perhaps unsurprisingly, technology has driven M&A activity this year. Deals related to connectivity, financial technology (fintech), cloud computing, e-commerce and big data accounted for 75% of the deals announced between January and the end of June.
With Covid-19 continuing to wreak havoc around the world, there is not a lot of hope that M&A activity will improve during the remainder of this year. With companies focused on riding out the pandemic, and many hoarding cash, mergers and acquisitions have become a low corporate priority. However, there is still activity taking place and a number of interesting deals that could lead to opportunities for investors, if they know where to look.
Here are four of the hottest mergers and acquisitions taking place right now.
- Uber (NYSE:UBER) / Postmates
- MultiPlan / Churchill Capital (NYSE:CCX)
- Amazon (NASDAQ:AMZN) / Zoox
- Mastercard (NYSE:MA) / Fincity
Hottest Mergers and Acquisitions of 2020: Uber / Postmates
Let’s start with one of the biggest and highest profile M&A deals of the year so far – Uber’s $2.65 billion acquisition of Postmates. Ride hailing giant Uber’s acquisition of Postmates in an all-stock deal brings together two of the biggest food delivery companies in the U.S. and will greatly strengthen the Uber Eats brand. The deal is subject to regulatory approvals.
Once finalized, Postmates will continue to operate under its own brand name but will be wholly owned by Uber. The combined Uber and Postmates will control nearly 40% of food delivery sales in the U.S., according to Edison Trends.
The acquisition by Uber, which was announced on July 6, came about after a potential deal Postmates had been negotiating with DoorDash fell through. DoorDash remains the largest food delivery service company with a 45% market share.
The acquisition comes at a critical time for Uber and its shareholders. The ride hailing company has been searching for growth opportunities as people stay home during the pandemic and its core business of driving people struggles.
In May, Uber posted a $2.9 billion loss for the first three months of the year and announced that it was laying off 14% of its workforce. However, revenue for Uber Eats rose 53% in the quarter as people order food delivery while sheltering in place.
Between April and June of this year, Uber said bookings through Uber Eats more than doubled from a year earlier.
While not yet final, the Postmates acquisition should deliver real value to Uber shareholders and boost UBER stock.
MultiPlan / Churchill Capital
This merger is a SPAC deal, which stands for “special purpose acquisition companies” and designed to enable healthcare service provider MultiPlan to go public. What makes this merger special is that, at $11 billion, it is the largest SPAC deal ever and will lead to a sizable initial public offering (IPO) that investors can get in on.
Under terms of the deal, MultiPlan, which is currently owned by private-equity firm Hellman & Friedman, will merge with Churchill Capital, a SPAC run by former Citigroup (NYSE:C) banker Michael Klein.
The merger will provide MultiPlan with up to $3.7 billion of new equity and convertible debt. The company plans to use the money to pay down debt. MultiPlan will continue to be run by existing management after the merger and IPO, including longtime Chief Executive Officer Mark Tabak. MultiPlan will be listed on the New York Stock Exchange.
The company’s platform is used by insurance companies such as UnitedHealth Group (NYSE:UNH) and Cigna (NYSE:CI) to find cost savings in healthcare insurance claims. MultiPlan estimates that its algorithms find nearly $20 billion in medical cost savings annually.
It takes a percentage of those savings as revenue, typically 5 cents to 13 cents on each dollar. MultiPlan said this deal will enable it to expand its analytics platform.
SPACs, also known as “blank check deals,” raise money from investors to buy privately traded companies. The acquired companies assume the SPAC listing, transforming them into public companies.
SPAC deals have been around since the 1980s but are growing in popularity right now. There have been more than 40 SPAC deals in the past year, including fantasy sports website DraftKings (NASDAQ:DKNG) and space tourism company Virgin Galactic (NYSE:SPCE).
Amazon / Zoox
Amazon announced on June 26 that it is acquiring the self-driving vehicle company Zoox for $1.2 billion. While self-driving cars may not sound like a natural fit for the online retailer, Amazon has been interested in branching out to the self-driving car space for a long time.
Amazon has already bought stakes in electric truck maker Rivian and self-driving start-up Aurora. Now, it has set its sights on Zoox, a California-based company that was founded in 2004. The reason Amazon is interested in Zoox is because it wants to add self-driving vehicles to its burgeoning ride-sharing service, which is now in the pilot phase. Zoox has raised $1 billion in funding to date, making it one of the few autonomous vehicle unicorns.
In an effort to keep Zoox workers around after the acquisition, Amazon is offering the self-driving car company’s staff $100 million worth of stock. In addition to developing a ride-sharing business, there is speculation that Amazon is acquiring Zoox for its vision technology, a cutting-edge application that enables companies to see and process visual information better than a human can.
Many analysts claim that vision technology is revolutionary in the same way that the personal computer, smartphone and Internet were each foundational technologies that changed how we all live. Vision technology is expected to be the bedrock on which fully self-driving vehicles are built. Other applications for vision technology include drone deliveries and more efficient healthcare systems.
Regardless of what Amazon takes from the acquisition of Zoox, it is clear that self-driving cars are a growing focus of Amazon and an exciting new business for the online juggernaut. That makes this one of the hottest deals right now in the mergers and acquisitions arena.
Mastercard / Fincity
Mastercard announced in June that it is acquiring (fintech) company Fincity for $825 million. Utah-based Fincity specializes in open banking – a new regulation-driven mode of banking that is widely used in Europe but is just now coming to the U.S.
With open banking, consumers are given greater control of their finances by leveraging secure application programming interfaces (APIs) to connect their bank account to other fintech services and make quicker and more secure payments.
Mastercard’s acquisition of Fincity comes after Visa executed a similar deal and acquired fintech company Plaid for $5.3 billion. Through Fincity, users can manage their money, access credit scores, pay bills and even apply for mortgages.
Finicity has also been at the forefront of creating the Financial Data Exchange (FDX), which represents banks, fintechs and financial services enterprises around the world that support a single data sharing standard. A standard approach to open banking and data sharing will make it less expensive for banks to enable access to data, while also keeping the relationships between individuals and their banks stable and secure.
It is clear that Mastercard sees the Fincity acquisition as a way for it to establish an open banking beachhead in the U.S. and move its business into the future. Forward-looking growth should benefit MA stock and its shareholders over the long term.
As of this writing, Joel Baglole owned shares of C stock.