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Biggest Deals 2020: COVID-19 didn’t slow consolidation in 2020; pace likely to accelerate in 2021

Much of 2020 was about change and loss.

Most businesses, at least temporarily, lost business as the pandemic drove customer spending behavior in new ways. Many more had to change — either the way their business operated or who operated it. Last year, much of the largest merger and acquisition activity wasn’t driven by opportunity, but by necessity.

Whether pushed by the pandemic or technological disruption, industry consolidation was the trend. But the pandemic didn’t dent deal sizes, as valuations remained high. In fact, the 20 largest deals of 2020 clocked in at $24.81 billion, only $50 million less than the $24.86 billion in 2019.

The largest deals of 2020 had little to do with the pandemic. Ohio-based Huntington Bancshares Inc.’s acquisition of Detroit-based TCF Financial Corp. is the result of a long-running trend since the Great Recession more than a decade ago. Banks have been under pressure to consolidate as regulatory changes from the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 put more barriers to risk, and thus earnings, in front of banks.

And as consumers continue to prefer online banking services, it’s been critical for regional banks to invest in technology to remain relevant, leading to many “mergers of equals” like Huntington and TCF.

The all-stock deal that will create a combined company with approximately $168 billion in assets and would be in the top 20 for largest banks in the country in terms of total assets, according to a recent list by the U.S. Federal Reserve Bank.

The COVID-19 pandemic and federal regulations requiring banks to pause foreclosures and other investment recovery measures will likely only expedite the trend when the pandemic subsides.

BorgWarner Inc.’s deal to acquire Delphi Technologies, which values Delphi at $3.9 billion, in an all-stock deal is also a deal to build scale against change. Electric vehicles accounted for a mere 1.8 percent of U.S. autos sold in 2019, yet the business is restructuring the entire automotive sector and forcing vulnerable suppliers to weld together.

Experts say this is the start of a long and possibly painful consolidation throughout the automotive industry. That will come at a time when some are predicting sales of internal-combustion engines — and perhaps autos overall — may have peaked for all time. Both companies’ engine and transmission businesses are seen by analysts as entering a period of decline, but are hoping a coupling will create enough volume to sustain.

The acquisition of Delphi allowed BorgWarner to outperform Wall Street estimates in the last quarter of 2020. Revenue for its air management division were up 26.7 percent in the fourth quarter to $1.94 billion with most of that increase coming from a $312 million boost from Delphi business. Without Delphi, that unit’s revenue would have been up just 2.8 percent on the quarter. Same for BorgWarner’s drivetrain segment, which reported sales of $1.45 billion in the quarter, up more than 38 percent from the same quarter last year with Delphi business accounting for $255 million of the roughly $400 million increase in sales.

“The consolidation (in the auto sector) is driven by a need for size and scale and the shift to electrification,” said Marc Holzer, partner with Deloitte’s Risk & Financial Advisory’s Mergers and Acquisitions practice in San Francisco. “Automakers are putting lines in the sand or dates on the calendar in pivoting away from an internal combustion portfolio to an electric portfolio and that’s driving a lot of deals for suppliers exposed to internal combustion engines.”

Simon Property’s $3 billion deal to acquire a majority stake in Bloomfield Hills-based Taubman Centers is much of the same. The mall operators combined to accrue more high-end malls, which have fared better in recent years, under one portfolio.

With more pressure to consolidate on the horizon, unprecedented funds on the sidelines from private equity and the growing optimism over the pandemic thanks to vaccine distribution, 2021 is likely to see ever-expanding deals, said Carrie Leahy, partner and chair of Detroit-based law firm Bodman PLC.

Globally, uncommitted private equity funds grew 9 percent in 2020 to $865 billion, a figure that has more than doubled in the past decade, according to an EY report.

“There is a lot of capital available in the market,” Leahy said. “Buyers are definitely on the sidelines waiting to see what happens with the pandemic and government assistance, but they are eager to deploy capital as soon as they can.”

THE FIVE BIGGEST DEALS OF 2020

1. Huntington Bancshares, Columbus, Ohio, acquiring TCF Financial Corp., Detroit. $6 billion
2. BorgWarner Inc., Auburn Hills, acquiring Delphi Technologies PLC, London, $3.94 billion
3. Simon Property Group Inc., Indianapolis, acquiring 80 percent ownership of Taubman Centers Inc., Bloomfield Hills, $3 billion
4. Sun Communities, Farmington Hills, acquiring Safe Harbor Marinas, Dallas, $2.13 billion
5. BMC Software Inc., Houston acquiring Compuware Corp., Detroit from Thoma Bravo L.P., Detroit, $2 billion

See the whole list:  Crain’s data subscribers can access an expanded list of Biggest Deal, with data on nearly 100 deals, including purchase prices and legal and financial advisers.

Posted By: Crain’s Detroit Business on February 21, 2021.  For more information, please click here to read the source article.

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