Pandemic to Spur Corporate Carveouts, Credit Suisse Says

(Bloomberg) -- The financial after-effects of Covid-19 will force companies into selling assets to boost their shares, spurring a second-half rebound in mergers and acquisitions, according to a senior dealmaker at Credit Suisse Group AG.

“Last year was the highest volume of corporate carveouts in Europe,” said Cathal Deasy, head of Europe, the Middle East and Africa M&A at Credit Suisse. “We expected that theme to accelerate in 2020 and even more so now following Covid.”

The value of global M&A is down 39% this year, according to data compiled by Bloomberg. Deals have been hit hard by the coronavirus crisis, which gripped economies in March and brought an end to a record bull-run in global equities.

While indexes have been creeping up, corporate bosses remain alert to the threat of a second wave of the virus as countries gradually emerge from lockdowns. Those in the worst-hit industries are expected to begin strategic reviews of operations. British Airways owner IAG SA is working with advisers to study its future business plan and liquidity needs, Bloomberg News reported this week.

“Investors have generally welcomed portfolio repositioning,” so companies doing well during the coronavirus outbreak are thinking about their next moves, Deasy said. Companies under pressure are asking themselves how they can get traction in their share prices, he said.

In mid-March, private equity firm KKR & Co. struck a deal for the biggest carveout from a publicly traded U.K. company since 2018, when it agreed to buy Pennon Group Plc’s waste-management business Viridor Ltd. for 4.2 billion pounds ($5.2 billion). Other high-profile divestments could come from a sale of EBay Inc.’s classified-advertising business or disposals by consumer group Unilever.

“We also see activism as a catalyst for corporate carve-outs in Europe,” Deasy said. “While we have observed less activist engagement with corporates during the crisis, we expect the volume of such engagement to rise over the coming months.”

Activist Cevian Capital AB revealed this month it had taken a stake in education firm Pearson Plc. Elliott Management Corp. reported a holding in NN Group NV in February and said it will push for “value creation” at the Dutch insurer.

©2020 Bloomberg L.P.