Given the long-standing correlation between Wall Street and M&A, it's a pretty sure bet the coronavirus pandemic will drag down acquisition activity. (After all, both markets run on confidence – a commodity, like toilet paper and bleach, that's awfully hard to find these days.) But unlike stocks, where twitchy traders react to bad news instantaneously, the disruption in the M&A market won't be fully evident for some time.
As investment bankers can tell you, roughly speaking, the gestation period for an acquisition lines up very closely with the gestation period for a human baby. (They might also add that birthing deals can be just as painful, too.) A look back on the previous Credit Crisis provides at least a rough timeline for the lag between economic/financial calamities and when they show up in the M&A totals.
Most of the confidence-shattering events of the Credit Crisis took place in 2008, including the bankruptcy of Lehman Brothers, the collapse of AIG and the Fed slashing its key benchmark interest rate to basically 0% for the first time in US history. Yet, despite those momentous events in 2008, which erased trillions of dollars of value from stocks, the M&A market still had farther to fall the next year.
In 2008, according to 451 Research's M&A KnowledgeBase, spending on tech and telecom transactions around the world dropped 40% compared with 2007. (We would add that 2007 stands as last decade's highest annual spending level.) From there, however, spending dropped another 40% in 2009, our data shows.
Although the economic recession caused by the Credit Crisis officially ended in 2009, buyers took much longer to recover from the worst economic downturn since the Great Depression. After bottoming out in 2009, tech M&A spending remained exceptionally weak for three additional years. (From 2009-12, tech acquirers averaged less than half the annual spending than they had in the two years immediately leading up to the recession.)
The M&A Knowledgebase shows it was only in 2013 that the value of global tech deals regained 2008's level. In other words, a two-year economic recession caused an M&A slump that lingered painfully for a half-decade.
Brenon Daly oversees the financial analysis of 451 Research's Market Insight and KnowledgeBase products, having covered more than a quarter-trillion dollars' worth of deal flow for both national publications and research firms.
Sheryl Kingstone leads 451 Research’s coverage for Customer Experience & Commerce, which covers the many aspects of how customer experience is a catalyst for digital transformation. She oversees the company’s coverage of a variety of customer experience software markets spanning ad tech, marketing, sales, commerce and service.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.