July 31, 2020
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The COVID-19 pandemic and the resultant social distancing restrictions, border closures and travel cancellations have dampened economic activity across the world. Global M&A activity saw a 28% decrease in year-over-year deal value during Q1, dropping from $745 billion in Q1 2019 to $545 billion in Q1 2020, and a 77% year-over-year decrease during Q2, dropping from $929 billion in Q2 2019 to $211 billion in Q2 2020.
Interestingly, however, the Canadian technology sector has not seen as drastic of a reduction in its economic activity. The Canadian Venture Capital and Private Equity Association (“CVCA”) reported that Canadian Venture Capital (“VC”) investments in Q1 2020 totaled $831 million, compared to $897 million in Q1 2019; equating to only a 7% year-over-year decrease. In addition, M&A activity in the Canadian technology sector has seen a minor drop in its activity relative to the technology sector globally. The Canadian technology sector dropped by 20% in its M&A deal value during Q1, from $503 million in Q1 2019 to $401 million in Q1 2020, and by 53% during Q2, from $2 billion in Q2 2019 to $937 million in Q2 2020. In comparison, globally, the technology sector dropped by 48% year-over-year in its M&A deal value during Q1, from $125 billion in 2019 to $65 billion in 2020, and by 71% year-over-year in Q2, dropping from $69 billion in 2019 to $20 billion in 2020.
A potential explanation for the technology sector’s resilience amidst the pandemic is the increased reliance consumers have for technology products and services. With movement and access to public spaces restricted around the globe, consumer demand for technology services and products has increased as consumers and employees have been forced to rely on connectivity and software for work and leisure more than ever. Businesses have been taking note of this trend and have been quick to act on the surfacing needs of customers. Nike, for example, is rolling out a new retail format called Nike Rise that focuses on digital engagement by sending alerts about in-store events and workshops to Nike app users entering that location. Walmart Canada is also adjusting its investments in hopes of developing “stores of the future”. The major retailer announced that it is investing $3.5 billion to support growth and improve both the online and in-store shopping experience.
With the ever-growing need to adapt to the pandemic, businesses, like Nike and Walmart, will search for novel ways to appeal to their customer base. This need for innovation highlights the potential for continuing economic activity in the technology sector throughout the pandemic.
Note: all data concerning M&A levels were extracted from Bloomberg Terminals and all dollar amounts are in USD. Searches were conducted for (a) Global M&A pending and completed deals in 2020 and 2019; (b) M&A pending and completed deals in the technology sector with a Canadian target company in 2019 and 2020; and, (c) Global M&A pending and completed deals in the technology sector in 2019 and 2020.
Author: Andre Damata
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