After adapting to working from home in the COVID-19 pandemic, cash-rich technology and healthcare companies have now mastered dealmaking from home.
This week, Nvidia Corp unveiled a $40 billion agreement to acquire chip maker Arm Ltd from SoftBank Group Corp, while Gilead Sciences Inc inked a $21 billion deal for biotech company Immunomedics Inc.
They are the latest examples of companies whose business is minimally affected by, or in some cases benefiting from, the pandemic’s financial fallout and which are embarking on big acquisitions.
“They’ve largely learned to do work from home for their own business, and now it’s about strategic deployment of capital,” said Tom Miles, co-head of mergers and acquisitions (M&A) for the Americas at Morgan Stanley.
To be sure, U.S. M&A volume so far in 2020 is down nearly 50% on the same period in 2019, Refinitiv data showed. But of the $715.9 billion spent on acquisitions this year, 41% has gone towards either a technology or healthcare transaction.
Tech deals account for 27% of deal volume, the highest level for this point in a year in the last 23 years, and are up 37% year-on-year.
“August was the busiest month ever for us. For tech and healthcare, the regular cadence of M&A is coming back,” said Marc-Anthony Hourihan, global co-head of M&A at UBS.
Technology and healthcare have historically the most active M&A sectors. But many companies in this sector have also fared better in the downturn, either because their offerings are accelerating the transition to digital workplaces and big data, or because they are benefiting from increased investment and spending on healthcare.
As a result, many of the companies are flush with cash, and if they also want to borrow to do deals, they can do so at very low interest rates.
Some smaller companies in these sectors have also emerged as popular targets for special purpose acquisition companies (SPACs), which have already spent a record sum to acquire companies to take public this year. The largest SPAC deal ever was July’s $11 billion purchase of healthcare services firm MultiPlan Inc by Churchill Capital Corp III.
What is more, technology and healthcare companies can be easier to carry out due diligence on remotely in the pandemic, compared to industries that have factories or stores, dealmakers said.
“As much as any sector, diligence can be completed entirely virtually (for healthcare companies) with limited necessity for on-site visits,” said Cary Kochman, global co-head of M&A at Citigroup.