ArkMalibu Update: Assessing the Impact of COVID-19

It has been three weeks since our last market update. Please read on for a brief summary of the M&A market, the economic outlook, and reasons to be optimistic.

Reasons for Optimism in M&A and Capital Markets

  • 152 deals closed in the U.S. & Canada over the past 7 days (last week 277 deals closed)
  • Nearly 11,000 federally insured banks and credit unions could be eligible for the Main Street Lending Program registration process
  • U.S. unemployment fell to 11.1% in June as economy added 4.8 million jobs
    • Includes 2.1 million jobs in hotels, restaurants, bars, and casinos, and 740,000 retail jobs

M&A Market Survey of 600+ Middle Market M&A Professionals

  • While there has been disruption in the market, private equity buyers still approach banks every day for deal flow
  • 60% of respondents reported one or more new deals since February 2020
  • 63% are actively pursuing deal opportunities, while 17% are restructuring & improving existing portfolio companies
  • 74% are advising sellers to prepare for a sale and to keep an eye on market valuations
  • 29% are advising sellers to start the sale process now
  • 37% are recommending using this time to restructure and improve the company

Stock Market Update

  • As of yesterday’s close, the Nasdaq has rallied 53.8% since March 23rd, bringing YTD performance to 17.6%
  • As of July 9th, the S&P 500 bounced back 40.9% off its March low, bringing YTD performance to -2.4%
  • Companies raised nearly $190 billion from the end of March through the end of June, the most ever in a single quarter for the U.S. equity-capital markets
    • Data startup Palantir Technologies files to go public, a $20 billion valuation that would be the largest Silicon Valley tech listing since Uber
    • Fintech startup nCinco files to go public, targeting $2 billion valuation
    • Alibaba’s fintech arm Ant Group plans Hong Kong IPO that could reach $200 billion+
  • Wall Street sees best quarter for stocks since 1998, bringing gains for the quarter to nearly 20%
    • S&P 500 rallied back in 2Q20 to within 8.4% of its record set in February, after being down 34% in late March
    • Includes 27.6% gain in technology stocks and 30.2% gain in consumer discretionary sector

Bond Market Update

  • Federal Reserve’s Secondary Market Corporate Credit Facility bought $429 million in corporate debt over the first two days of new bond-buying efforts
  • The Bloomberg Barclays US Aggregate Bond Index posted a total return of 2.9% in 2Q20, its eighth consecutive quarterly gain
    • Index is up slightly more than 17% over the eight quarters, the best two-year stretch since 2010
  • High-yield bonds finished second quarter strong, with Bloomberg Barclays US Corporate High Yield Index gaining 0.98% in June and 10.18% for the quarter
  • Municipal bond mutual funds have seen $11 billion of inflows since mid-May, more than one-third of the amount withdrawn in March and early April
  • 30-year Treasury bond yield rose 6 basis points to 1.41% to end 2Q20

Good News We’ve Been Reading

Economic Recovery Continues Across Globe

United States

  • Gas station visits are outpacing pre-pandemic levels in Midwest
  • Costco announced same-store sales rose 11.5% YoY in June
  • New user growth in auto shopping apps has increased YoY in every month of 2020 except April
  • Institute for Supply Management reports non-manufacturing activity index jumped to 57.1 in June, the highest since February
  • Box subscriptions, commercial cleaning services, errand services, freelance copywriting & design, IT & cybersecurity, telehealth, and virtual fitness & wellness providers continue to thrive

Around the Globe

  • EU countries open borders to visitors from 15 countries, including Canada, Australia, New Zealand
    • Allows exceptions for health care workers, diplomats, humanitarian workers, transit passengers, asylum seekers, and students, as well as for imperative family reasons
  • United Kingdom forms travel corridors with 59 different countries
  • Hungary opens borders to 14 EU-approved safe countries as well as Serbia
  • Turkey has gradually restarted international flight routes & set new guidelines for hotels and resort facilities
  • Mexico aims to welcome visitors back within weeks, beginning with domestic travelers and followed by those from the U.S. & Canada
  • Dubai & Jamaica opened doors to foreign visitors in mid-June
  • United Arab Emirates reopened to international visitors July 7th
  • Thailand lifted ban on international flights on July 1st, provided certain criteria were met, and now allows business travelers and those seeking medical treatment to enter

Vaccine Development Update

  • Five companies developing vaccines will testify before sub-committee of the U.S. House of Representatives in late July, an opportunity for both Congress and citizens to hear directly from manufacturers about their research and development efforts
    • Companies also expected to share details about manufacturing and distribution of vaccines
  • In largest deal to date from Operation Warped Speed, federal government pays Novavak $1.6 billion to expedite its vaccine development
    • Other distributions include $1.2 billion to AstraZeneca, $500 million+ to Moderna
  • BioNTech partnership with Pfizer to seek vaccine approval by December, with millions of doses available by year-end and 1 billion+ doses available by December 2021
  • FDA publishes “Development and Licensure of Vaccines to Prevent COVID-19” to facilitate transparency and timely development of vaccines, providing overview of key considerations that must be met to facilitate manufacturing and clinical development
  • RNA vaccines rise as top candidates, and are cheaper, easier, and faster to manufacture on massive scale

Innovations Bloom, Habits Change as Society Adjusts to COVID-19

  • Detroit-based Redcliffe Medical creates world’s first transparent FDA registered smart mask
  • New MIT robot using UV light to kill COVID-19 could be used to disinfect warehouses, schools, and offices
  • UK startup Arrival launches electric buses that help maintain social distancing
  • Hungary-based studio Hello Wood creates workstation cabins offering work-from-home modules
  • Polish company Bike2Box introduces temporary bicycle parking boxes to meet growing demand post-lockdown
  • Indian company Techmax Solution designs touchless elevator panels to fight the virus
  • Mumbai-based Surreal Design Studio creates sanitizing tunnels and booths

Positive Encouragement From Around the Globe

  • Gratitude attracts gratitude; this is the time in our world to share that we care and go above and beyond, and people will do the same for you – Gregg Jantz, A Place of Hope
  • If there is any silver lining to this pandemic, it has put mental health on the map…it’s the time now to address this crisis in front of us – Karen Lynch, CVS Health

ArkMalibu is happy to answer any questions you may have and to offer guidance during this challenging time. Please visit our website (https://www.arkmalibu.com) for more information.

Until our next update, we send best wishes to you and yours for safety and health.

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