Market decline

Could the market decline force renegotiation of M&A prices? (Covea-PartnerRe, Aon-WTW)

With the pressures of the coronavirus (COVID-19) outbreak causing increased market volatility and significant stock price declines, there could be a question mark over some of the biggest M&A deals (M&A) announced recently.

For example, PartnerRe shares were valued at $27.20 per share on the New York Stock Exchange when Covea’s $9 billion acquisition of the company was announced on March 4.and.

But now, a few weeks later, the shares are valued at $23.41, having fallen to $21.90 in the past few days.

As such, buying PartnerRe could suddenly seem very expensive to Covea, whose $9 billion offer was already seen as a surprisingly high mark-up on the $6.72 billion Exor had paid for the reinsurer in 2016.

This could give Covea the chance to renegotiate the sale price, as there are unlikely to be any other buyers at the moment for the company.

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Notably, at its current share price, PartnerRe’s market capitalization is considered to be $6.74 billion, which is well below both Covea’s offer and the independent fair valuation of 7.65. billion dollars from PartnerRe given as of June 30, 2019.

And looking at other deals, coronavirus-induced market volatility could also be an issue for Aon’s recently announced takeover of rival broker Willis Towers Watson (WTW).

With an estimated purchase price of $30 billion, this mega deal was confirmed on March 9and when WTW shares were priced at US$184.74 on the Nasdaq.

But while ratings agencies agreed that a combination with Aon would be a positive move for WTW, its stock price has steadily fallen to $152.63 over the past two weeks, with a market cap of 19.65. billions of dollars.

Again, with the value of the business having deteriorated so much in such a short time, this could provide Aon with a reason to renegotiate its offer.

And likewise, there are unlikely to be any other potential buyers for WTW, given the size of the acquisition and the increasingly consolidated state of the broker market.

While none of the companies in question have yet discussed the possibility of reviewing the terms of their acquisitions, if stock prices continue to decline in the weeks and months to come, this could become a more pressing consideration.

All of this speculation will, of course, depend on the evolution of the global response to COVID-19 and any further impact the outbreak will have on global economies.

For now, the long-term impacts of the virus remain unknown, but in the short term at least, it looks like global financial markets should be prepared for increased volatility and more challenges.

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