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Could market decline force M&A price renegotiations? (Covea-PartnerRe, Aon-WTW)

23rd March 2020 - Author: Matt Sheehan

With pressures from the coronavirus (COVID-19) outbreak causing a surge in market volatility and significant decreases in share prices, there could be a question mark over some of the larger merger and acquisition (M&A) deals announced recently.

For example, PartnerRe shares were valued at US $27.20 per share on the New York Stock exchange when Covea’s $9 billion acquisition of the company was announced on March 4th.

But now, just a few weeks later, shares are valued at $23.41, having dropped as low as $21.90 in the last few days.

As such, the PartnerRe purchase could suddenly be looking very expensive to Covea, whose $9 billion offer was already seen as a surprisingly high mark-up on the $6.72 billion that Exor had paid for the reinsurer in 2016.

This could give room for Covea to renegotiate on the price of the sale perhaps, as there are unlikely to be any other buyers out there right now for the company.

Notably, at its current share price PartnerRe’s market cap is considered to be $6.74 billion, which is well below both Covea’s offer and the $7.65 billion independent fair valuation of PartnerRe given at June 30, 2019.

And looking at other deals, coronavirus-induced market volatility could also be an issue for Aon’s recently announced takeover of rival broker Willis Towers Watson (WTW).

With an estimated purchase price of $30 billion, this mega deal was confirmed on March 9th when WTW shares were priced at US $184.74 on the Nasdaq.

But while rating agencies have agreed that a combination with Aon would be a positive move for WTW, its share price has steadily dropped down to $152.63 over the last two weeks, with market cap now standing at $19.65 billion.

Again, with the company’s value having deteriorated so much in such a short space of time, this could provide Aon with the grounds to renegotiate its offer.

And similarly, there are unlikely to be any other potential buyers for WTW, given the size of the acquisition and the increasingly consolidated state of the broker market.

While none of the companies in question have yet hinted at the possibility of reviewing the terms of their acquisitions, if share prices continue to drop in the coming weeks and months it could become a more pressing consideration.

All of these speculations will, of course, depend on how the global response to COVID-19 evolves, and on any further impacts the outbreak will have on world economies.

For now any long-term impacts of the virus remain unknown, but in the short-term at least it does look like the global financial markets should be prepared for further volatility and more challenges.

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