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First quarter global M&A drops 30%

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The spread of coronavirus took its toll on first quarter global mergers and acquisitions (M&A), and the second quarter likely saw even weaker activity as the full impact of lockdowns on deal appetite becomes clearer.

Aon’s latest M&A Risk in Review says first quarter deal value and volume both dropped by around 30% from the final three months of last year.

Despite the significant slowdown, deals continued to to be made, and as countries and businesses begin to return from lockdown the market could well pick up pace in the second half of the year, Aon says.

“Buying opportunities still exist but a higher risk tolerance will be needed as buyers become less certain of valuations,” said Matthew Heinz, Co-Practice Leader in Aon’s Transaction Solutions Practice.

“With all the dry powder on hand, there nonetheless could be a feeding frenzy.”

Mr Heinz says the market in late 2020 and into 2021 will likely be characterised by “distressed” deals, and M&A insurance will become an increasingly powerful pillar in facilitating these.

The value of M&A insurance in the face of economic uncertainty and distressed transactions will make it a key factor as deal volume begins to rebound, he says.

The impact of COVID-19 on headline deal activity in 2020 could see the number of Representations and Warranties insurance policies placed during the year fall to below 2019 levels, although tax, litigation and contingent policies remain positioned for growth, Aon says.

M&A insurance has become such a staple of the industry that the percentage of penetration in the deal market should remain high even if the actual number of transactions stagnates.