ArkMalibu Update: Assessing the Impact of COVID-19

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

Reasons for Optimism in M&A and Capital Markets

• 154 deals closed in the US & Canada over the past 7 days (last week 169 deals closed – COVID bottom was ~100 deals per week)
• “Barring a major global lockdown being imposed, we can expect a continued acceleration of deal making with cash being an element of it…big and financially robust companies are ready and able to fund significant deals if they want to.” – Andrea Guerzoni, Ernst & Young
• Cash holdings of US public companies amounted to $2.5 trillion during the last reported quarter, up from $2 trillion at 2019 year-end
• Megadeals lead the M&A charge in July & August, including:
  • Seven & i Holdings acquires Marathon Petroleum’s Speedway petrol stations for $21 billion
  • Analog Devices acquires Maxim Integrated Products for $20 billion
  • Siemens Healthineers acquires Varian Medical Systems for $16 billion
  • Johnson & Johnson acquires Momenta Pharmaceuticals for $6.5 billion
  • Clayton, Dubilier and Rice acquires White Cap, HD Supply’s construction & industrial business, for $2.9 billion
• As of August 13^th, new applications for US unemployment benefits had fallen below 1 million for the first time since the start of the pandemic
• US has gained more than 9 million jobs in the past three months, representing nearly 43% of the 21 million jobs lost in March and April

August 21^st Stock Market Update

• As of August 20^th, the S&P 500 bounced back 51.3% off its March low, bringing YTD performance into positive territory (+4.8%) and ahead of the previous index high set prior to COVID-19
  • Transformations in technology, accelerated by the coronavirus pandemic, have led to a wide dispersion of performance by sector
    • The top performing sector, S&P 500 Info Tech Sector SPDR (XLK), is up 28.1% year-to-date
    • The worst performing sector, S&P 500 Energy Sector SPDR (XLE), is down -37.5% year-to-date
  • Space X raises $1.9 billion, its largest ever funding round, bringing its total raises to date to $5.4 billion
  • Impossible Foods raises $200 million to fund retail expansion and R&D efforts, following a $500 million raise earlier this year and taking the company’s total funding to nearly $1.5 billion
• As of August 20^th, the Nasdaq has rallied 64.2% since March 23rd, bringing YTD performance to 25.5%
• Apple becomes first US company to reach market cap of $2 trillion, doubling its valuation in just over 2 years
• Target posts all-time high sales growth with 80% profit bump, adding 10 million new online customers
• Lowe’s reported a 30% surge in second-quarter revenue
• Home Depot’s sales soar 23% and come in at $38 billion, its biggest quarterly sales growth in nearly 20 years

August 21^st Bond Market Update

• US treasury yields rose August 19^th following the release of the FOMC meeting minutes during July 29^th, 2020
  • 30-year bond increased 4 basis points to 1.43%
  • US Treasury Department sells $25 billion in 20-year bonds with high yield of 1.185%
  • 10 year yield rose 2 basis points to 0.68%
• Municipal bond yields rose as new issue supply of $11 billion was well-received
  • Funds flows were positive for 14^th consecutive week at $2 billion
  • Los Angeles Metropolitan Transportation Authority issues $1.3 billion in sales tax revenue bonds, with 10 year bonds priced at yield of 0.77%
• High yield corporate bond spreads widened 19 basis points during the week ending August 16^th; this was the first weekly loss after six consecutive weeks of gains

Good News We’ve Been Reading

Economic Recovery Continues Across Globe

• United States
  • Amazon plans to expand physical offices in 6 US cities, adding 3,500 jobs
  • As of August 7^th, Simon, the largest mall landlord in the US, reports 91% of its US tenants are open and operating
  • 91% of Marriott’s global properties are now open
  • Robotic usage among retailers jumped 14% YoY from January to March, and 24% from April to June
  • TSA screens nearly 830,000 people at airport checkpoints on August 9^th, the first time screenings have topped 800,000 since March 17^th
• Around the Globe
  • EU industrial production rose 9% in June as manufacturers ramped up activity
    • Tui, Europe’s largest tour operator, secures additional $1.2 billion loan from German government
    • Shares in European e-commerce fashion retailer Asos jump as customers shift to online shopping, projecting revenue growth to be nearly 20% YoY
  • United Kingdom expands random swab testing through Scotland, Wales, and Northern Ireland to target 150,000 people every two weeks
    • Total number of online job advertisements increased by 9% in early August, reaching 62% of 2019 average and marking transition away from flatline trend
  • Following countries are 80%+ reopened since lockdowns
    • Finland: public outdoor events with 500 people set to resume, borders open to all EU Green List countries
    • Norway: public outdoor events with 200 people set to resume; all entertainment & personal services open
    • Sweden: maximum gatherings of 49 people, companies gradually returning to office
    • Poland: hotels, cinemas, and theaters open, with gatherings of up to 150 people
    • France: casinos, collective sports, and public transportation open, with events limited to 5,000 people
  • Following countries are 60% – 80% reopened since lockdowns
    • Germany: borders open to 8 non-EU states, most attractions open, fitness centers with limited access
    • Romania: commercial malls and swimming pools open, private indoor events allow under 20 persons
    • Portugal: land border with Spain open, remote work begins to scale down
    • Russia: international flights open to Turkey, UK, Tanzania; events with 3,000 people allowed with 50% of working capacity staffed
  • Following countries are 40% – 60% reopened since lockdowns
    • India: borders and bars & movie theaters remain closed, but some offices open as well as restaurants for carryout
    • Philippines: essential construction and limited personal services begin, gatherings at 10% of capacity
    • Mexico: essential services open, personal services for select use cases open, no public gatherings

Vaccine Development Update

• U.S. Department of Health & Human Services and Department of Defense agree to manufacture and deliver 100 million doses of Moderna vaccine, to be manufactured while clinical trials are underway
• Pfizer anticipates clinical trials will yield results by October, with 30,000 patients to be enrolled by end of August
• AstraZeneca’s co-development agrees to allow Chinese manufacturer Shenzhen Kangtai Biological Products to manufacture vaccine, anticipating 100 million doses by year-end and 200 million minimum doses by 2021 year-end
• Johnson & Johnson secures $1 billion+ deal with US government to supply 100 million doses of vaccine if proven viable
• Novavax vaccine early results suggest two dose levels of vaccine trigger immune response similar to patients who had recovered from coronavirus

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

• Digital Aerolus develops indoor drone with UVC energy to disinfect & combat COVID
• Chinese online retailer JD utilizes autonomous robot vehicles to deliver food, medicine, and supplies
• Formalabs deploys nearly 1,000 printers to mass produce swabs and other PPE
• Dragonfly’s Vital Intelligence health & respiratory monitoring system detects infectious & respiratory conditions
• TempTraq’s wearable temperature monitoring device allows healthcare workers to remotely monitor fever with little-to-no direct patient contact

Positive Encouragement

• “The secret of change is to focus all of your energy, not fighting the old, but on building the new.” – Socrates
• “Life doesn’t get easier or more forgiving, we get stronger and more resilient.” -Steve Maraboli
• “Courage is not the absence of fear, but rather the assessment that something else is more important than fear.” – Franklin D. Roosevelt
• “Challenge and adversity are meant to help you know who you are. Storms hit your weakness but unlock your true strength.” – Roy T. Bennett

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.