Cracks Start to Appear in $890 Billion Stock-Fueled M&A Boom
(Bloomberg) -- The slump in the stock market is having ripple effects in mergers and acquisitions.
Zoom Video Communications Inc.’s deal to use its stock to acquire Five9 Inc. collapsed Thursday after a plunge in the buyer’s share price. The agreement, which valued Five9 at more than $14 billion when it was announced, is now worth only $9.5 billion.
Now investors will be watching the stock prices of other buyers to see if more deals are at risk, especially in technology, where some high-flying shares have been hit especially hard. Companies globally have announced nearly $890 billion of acquisitions this year involving some form of stock payment, with $547 billion of those deals still pending, according to data compiled by Bloomberg.
Soaring valuations since stock prices bottomed in 2020 have allowed market darlings to use their shares as a cheap currency to grow through acquisitions, without burdening their balance sheets. While that was a boon when the market was surging, the risk is it comes back to bite them when a correction comes.
Fantasy-sports giant DraftKings Inc. is in the middle of two cash-and-stock deals, while its shares have declined 24% in the past three weeks. One is a $22.4 billion offer for Entain Plc and the other is an agreement to buy Golden Nugget Online Gaming Inc. for $1.56 billion.
Another such example is U.S. cybersecurity company NortonLifeLock’s deal to buy Avast Plc for $8.6 billion in cash and shares.
The biggest pending stock deal in the U.S. is in the financial-data business: S&P Global Inc.’s $43.5 billion purchase of IHS Markit Ltd.
Zoom’s offer valued for Five9 at about $200 a share when the deal was announced in July. Zoom’s stock has slumped 28% since then, cutting the value to less than $145 -- below where Five9 was trading in July. Analysts say it makes sense that Five9 holders spurned the transaction.
Shares of both Zoom Video and Five9 are up 3% and 6%, respectively, in Friday trading.
©2021 Bloomberg L.P.