The top M&A deals of 2020.
For businesses looking beyond the current crisis and trying to invest in future growth, the pandemic presents an opportunity to acquire companies whose futures are uncertain or whose financial positions are precarious. Now may be the time for big companies to get bigger and expand their moats against competitors, or for small competitors to team up against larger rivals -- but that's easier said than done. Deals that had seemed like no-brainers before the pandemic have been put on hold or canceled altogether, while unforeseen circumstances have brought together unlikely alliances. Let's take a look at the highlights of the mergers and acquisitions that have been completed during the pandemic, the deals that have fallen through, and the ones that may yet take place.
L Brands (ticker: LB) and Sycamore Partners
Deal status: Canceled on May 4
L Brands' plan was to spin its Bath & Body Works brand off into a stand-alone company and sell its lagging Victoria's Secret/Pink brands to the highest bidder. That bidder was Sycamore Partners, a private equity firm that agreed to acquire a 55% stake in the womenswear business for $525 million in February. The deal was a great one for L Brands, which had taken on a hefty debt load as Victoria's Secret struggled to keep up with the times in a difficult retail environment. But when L Brands closed its stores as well as its online platforms after consumers went into lockdown, Sycamore took that as a breach of contract and decided that it wanted out. Both companies walked away from the deal, leaving L Brands to figure out a way forward on its own.
T-Mobile (TMUS) and Sprint
Deal status: Completed on April 1
The third-largest wireless carrier in the U.S. just got larger -- after more than two years of jumping through regulatory hoops, the $26.5 billion deal between T-Mobile and Sprint has been completed. The new T-Mobile (the Sprint name will be dropped) provides Verizon (VZ) and AT&T (T) with a stronger rival as 5G networks begin to roll out around the world, beginning a new era in the wireless wars. Over the last few years, T-Mobile has grown into the postpaid carrier du jour, while Sprint's focus on the midband spectrum may give the combined company a leg up as 5G becomes the new normal. With prices locked in for the next three years (per the company's agreement with regulators), customers may be taking a second look at the new T-Mobile.
Deal status: Received antitrust approval in March, and on track to close in Q4 2020
In October 2019, Charles Schwab (SCHW) initiated a race to the bottom by cutting its commissions to zero, forcing its competitors to do the same or risk being left behind. Considering 17% of E-Trade's net revenue came from commissions, the pricing war put the discount broker in a pickle -- until Morgan Stanley announced on Feb. 20 that it would acquire the broker for $13 billion. The deal made sense for Morgan Stanley at the time, supplementing its wealth management business and broadening its customer base by 5.2 million E-Trade users, whom the company can upsell with its upscale advisory products. And considering the spike in retail investing we've seen since the pandemic began, this deal seems to have sweetened over the last few months.
SoftBank and WeWork
Deal status: Heading to court
Though it wasn't an acquisition per se, SoftBank's $3 billion tender deal with WeWork would've given it a roughly 80% stake in the shared workspace company when combined with the billions SoftBank has already spent on WeWork. But both companies already had problems; WeWork wasn't the only investment that SoftBank had sunk large amounts of money into with little to show for it, and investors were not pleased. Meanwhile, WeWork had suffered a series of setbacks that included its failed initial public offering and the ousting of CEO Adam Neumann. Then the pandemic began shutting offices around the world, and suddenly the idea of shared workspaces seemed downright dangerous. SoftBank decided enough was enough and pulled out of the deal in early April -- and while SoftBank will be just fine, WeWork's future is suddenly very much in doubt.
Deal status: Rumored
With lockdowns keeping customers at home, the largest movie theater operator in the country has had a difficult few months. But shares of AMC got a shot in the arm in late May on the rumor that Amazon may be looking to acquire the company. Amazon doesn't need the money from ticket and popcorn sales, but a stronger theatrical presence could drive more subscribers to Amazon's Prime Video service. As for AMC, more than $4.8 billion in debt weighs down the company's balance sheet, and the losses continue to mount the longer customers stay at home. Even with reopenings kicking off around the country, it's unlikely movie theaters will be at full capacity during the summer blockbuster season. And as of April, AMC only has enough cash to keep the company afloat until November.
Deal status: Canceled
Food delivery was always a war of attrition, as the expenses of delivery service often outweighed any profits seen by Uber or Grubhub. But with Uber's ride-hailing business decimated by the pandemic, UberEats was a lone bright spot the company wanted to expand upon. Meanwhile, by joining forces with Uber, Grubhub could utilize the economies of scale that Uber's wide reach would provide and allow it to stop spending massive amounts of money trying to overtake its largest rival, DoorDash. In the end, management from the two companies couldn't reach an agreement. Grubhub decided to instead merge with European delivery company Just Eat Takeaway, which is itself the result of a recent merger between a British and a Dutch delivery service. As for Uber, its delivery competition just got a whole lot stiffer.
Deal status: Unlikely
The pharmaceutical industry has always been a hotbed of mergers and acquisitions, but a tie-up between AstraZeneca and Gilead would be the largest deal in industry history. The idea behind consolidating is simple: Both companies are working on a major virus vaccine, and neither wants to lose out on the massive profits that a vaccine would bring. Gilead's antiviral Remdesivir has proven to be a front-runner in the vaccine race, while AstraZeneca is preparing to produce a vaccine created by researchers at the University of Oxford. The discussions between the two companies were informal, and as of now, nothing has come of them -- but even the possibility of a merger that would create the world's largest pharmaceutical company by market value is worth paying attention to.
The top M&A deals this year:
-- L Brands (LB) and Sycamore Partners
-- T-Mobile (TMUS) and Sprint
-- SoftBank and WeWork
Mark Reeth is a contributing writer for U.S. News & World Report, where he writes about anything and everything to do with investing. Prior to U.S. News, Mark covered consumer goods, technology, and telecom stocks for The Motley Fool. When he's not writing about investment strategies Mark is busy running his own small business, which has given him a better appreciation of the personal finance trials and tribulations of entrepreneurs everywhere.
Mark is a graduate of the College of the Holy Cross, where he studied History and Education. You can connect with Mark via LinkedIn, or follow him on Twitter.