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

  • 141 deals closed in the U.S. & Canada over the past 7 days (last week 312 deals closed, the highest rolling 7-day deal count since covid)
  • As of September 7th, the combined value of megadeals announced so far during the 2H2020 has reached $256 billion
    • Includes nine deals worth $5 billion or more announced in August alone, the largest count for August since 1999
      • Technology deals total $69.3 billion, accounting for 27% of global M&A activity in August
      • Healthcare deals total $38.5 billion, the highest monthly value since December 2019
  • August unemployment rate and jobs update:
    • Unemployment rate fell to 8.4% in August, compared to 10.2% in July and nearly 15% in April
    • U.S. added 1.4 million jobs in August; U.S. has now gained 48% of the 22.1 million jobs lost between February & April
    • Number of Americans on temporary layoff fell by 3 million to 6.1 million
  • $44 billion of government funds set aside for disaster relief are approved to fund extended economic relief efforts
    • 47 states apply to extend payments, allowing applicants to receive an additional $300 a week in federally funded unemployment benefits

September 11th Stock Market Update

  • As of September 10th, the S&P 500 bounced back 49.6% off its March low; YTD performance remains in positive territory (+3.6%)
    • September 9th closed up 2%, marking the S&P 500’s best one-day performance since June
      • Transformations in technology, accelerated by the coronavirus pandemic, have led to wide dispersions in stock market performance by company size
        • As of September 4th, the Top 5 firms (Apple, Amazon, Microsoft, Alphabet, Facebook) represented 25% of the overall U.S. market cap, while the Top 20 firms represented 45%
          • Strongest performers have been the “megacaps”, as the largest companies have been the most rewarded since 2017
    • As of September 10th, the Nasdaq has rallied 59.2% since March 23rd, bringing YTD performance to 21.7%
      • September 9th recorded the index’s best day since April, with a 2.7% gain for the day
    • New Funding
      • Dating app Bumble announces preparation for IPO valued at $6 billion – $8 billion
      • Pactiv Evergreen, the largest North American manufacturer & distributor of fresh-food-service, food-merchandising products, and fresh beverage cartons, seeks to raise $862 million in IPO
      • SPAC market continues to see record funding levels as companies look for alternative ways to access capital
        • NavSight Holdings, a new SPAC providing national security & intelligence services to the U.S. government, prices $200 million IPO
        • YTD 2020 there have been 91 IPO transactions (59 in 2019) via SPAC or “blank check” companies representing $36.2 billion ($13.6 billion in 2019) in gross proceeds

September 11th Bond Market Update

  • Investment grade corporate bonds posted moderate gains last week, with independent energy & other utilities delivering the highest total returns
  • After tightening last week, high yield corporate bond spreads widened 13 basis points during the week ending September 6th, with life insurance & leisure sectors seeing best relative sector performance
  • US Treasury Update: The Treasury has been increasing the size of its auctions across the curve as it pays for stimulus meant to boost the economy after the coronavirus lockdown
    • Record $50 billion in 3-year notes on September 8th, while the yield of 0.17% was a historic low
    • $35 billion in 10-year notes on September 9th, selling at 0.70% yield
    • $23 billion in 30-year bonds on September 10th,  selling at 1.46% yield
  • Municipal bond yields rose slightly as new issue supply of $9.2 billion was well-received
    • Funds flows were positive for 17th consecutive week at $135 million
    • State of California issues $2.6 billion in general obligation bonds, 10-year bonds with 5% coupon at a yield of 1.2%

Good News We’ve Been Reading

 

Economic Recovery Continues Across Globe

  • United States
    • Housing market continues to shine as record-low mortgage rates fuel demand and applications continue to exceed February levels
    • A weekly indicator of retail sales, Johnson Redbook same-store sales improve for fourth straight week, down only 3% YoY
    • OpenTable data shows restaurant reservation bookings improve for six straight weeks
    • Measures of mobility remain stable: public transportation has steadied at nearly half its pre-pandemic normal levels, and airline passenger traffic remains at a third of traffic compared to last year
  • Around the Globe
    • Retail sales in the EU started to falter in July, after growing in the 3 prior months, yet volume has returned to same levels as prior to covid
      • Real internet spending in July was up 16% YoY
    • France: President Emmanuel Macron unveils $118 billion stimulus plan that includes wage subsidies, tax cuts for businesses, and funding for environmental projects, shifting from emergency spending to longer term problems
    • Italy: Prime Minister Conte enforces local restrictions with targeted measures, rather than nationwide lockdown, as cases see slight rise
    • Spain: Prime Minister Sanchez moves away from lockdown and toward putting responsibility in hands of regional authorities, as cases see their highest rise in four months
    • Japan: industrial production bounced back in July and rose 8.0% from June, the highest rate of monthly growth on record, largely driven by 38.5% rise in output in the automotive sector
    • Japan: as of August 28th, allows U.S. citizens with resident or student status in Japan to re-enter; large gatherings allowed with up to 5,000 attendees
    • China: establishes travel bubbles with Singapore & South Korea, allows visitors from 36 European countries with resident permits to apply for visas again
    • South Korea: fully open to travelers, including those from the U.S., with commercial flights opening soon
    • Thailand: will allow foreign tourists with stays of at least 30 days to begin entry on October 1st
    • India: begins opening popular sites such as Taj Mahal and historical monuments
    • Dubai, Egypt, Ethiopia: allow U.S. travelers with negative covid test result & medical travel insurance to enter

Vaccine Development Update

  • Johnson & Johnson, AstraZeneca, BioNTech, GlaxoSmithKline, Merck, Moderna, Novavax, Pfizer, and Sanofi sign pledge to develop & test vaccines with high ethical standards, sound scientific principles, and rigorous clinical trials & manufacturing processes
  • Novavax publishes Phase 1 data from clinical trial, yielding no severe adverse events
    • All volunteers who received vaccine developed neutralized antibodies after the second dose, at four to six times the average count of those who recovered without vaccine
  • Johnson & Johnson reports positive results in animal testing, aiming for late-stage human studies later this month
    • Vaccine prevented severe illness in hamsters, causing vaccinated hamsters to experience less weight loss and less severe symptoms than those unvaccinated
  • Pfizer sends a fifth potential vaccine candidate to Phase 1 clinical trials, in addition to standing vaccine candidate that is set to undergo Phase 2 and Phase 3 clinical testing
    • Vaccine candidate that is set to undergo Phase 2 already has 23,000 participants enrolled, with 7,000 remaining spots
  • AstraZeneca and Oxford’s co-development Phase 3 Trial is put on pause after adverse event
    • Investigations will determine causation and resumption of trials

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

  • U.S.-based rental platform Swimply allows neighborhood-friendly pool rentals to enjoy last traces of summer
  • U.S.-based wholesale grocery delivery startup Cheetah sets up network of street fridges to help those in need and reduce food waste
  • Scottish-based manufacturer Oceanium develops home compostable bio-packing materials and food products made from sustainably-farmed seaweed
  • UK-based experience design agency Layer designs premium covid-proof cinema seats
  • Finnish-based ag-tech company iFarm makes uses of empty office spaces to commercially scale vertical farming

Positive Encouragement

  • “Fortune sides with him who dares.” – Virgil
  • “You cannot solve a problem from the same level of thinking that created it.” – Albert Einstein
  • “Our doubts are traitors and make us lose the good we oft might win by fearing to attempt.” – William Shakespeare
  • “Walk with the dreamers, the believers, the courageous, the cheerful, the planners, the doers… the successful people with their heads in the clouds and their feet on the ground. Let their spirit ignite a fire within you to leave this world better than when you found it.” —Wilferd Peterson

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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