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

  • 118 deals closed in the U.S. & Canada over the past 7 days (last week 224 deals closed)
  • Global deal volume is approaching $2 Trillion for 2020
  • Q3 2020 M&A activity saw a record number of $5 billion+ deals, signaling an appetite for larger deals
    • Excluding the real estate sector, the technology and healthcare sectors have the highest aggregate deal volume within North America ($115 billion) since the pandemic began:
      • Technology deals total $26.5 billion, accounting for 23% of deal volume
      • Healthcare deals total $17.1 billion, accounting for 15% of deal volume
  • September unemployment rate and jobs update:
    • Unemployment rate fell to 7.9% in September, compared to 8.4% in August
    • U.S. added 661,000 thousand jobs and the number of unemployed persons fell by 1.0 million to 12.6 million.
      • This marks a decline in the number of unemployed persons for 5 consecutive months
    • Number of Americans on temporary layoff fell by 3 million to 6.1 million
  • Federal Reserve
    • Economy expected to improve next year, with unemployment falling to 5.5%
    • Commitment to leave interest rates near zero until at least 2023

Stock Market Update

  • As of October 1st, the S&P 500 bounced back 51.1% off its March low; YTD performance remains in positive territory (+4.6%)
  • Transformations in technology and consumer habits, caused by the coronavirus pandemic, have created winners and losers during the third quarter of 2020
    • Themes that benefited during Q3 include side-hustles(i.e. gig economy), work-from-home, return-to-sports, and workout-from-home with Fivver(NYSE:FVRR), Zoom(NasdaqGS:ZM), DraftKings(NasdaqGS:DKNG), and Peleton(NasdaqGS:PTON) stock prices rising +88%, +84%, +76%, and +64% respectively
  • As of October 1st, the Nasdaq has rallied 65.1% since March 23rd, bringing YTD performance to 26.2%
  • Record I.P.O. Activity
    • Amount raised in U.S. listings year-to date is at record highs, marking the busiest deal count for a third quarter since the dot-com boom of 2000
    • Asana(NYSE:ASAN) and Palantir(NYSE:PLTR) listed on the NYSE September 30th at $4.1 billion and $21 billion valuation, respectively
  • SPACs continue their resurgence in markets as companies look for alternative methods to access capital and investors look for different ways to deploy theirs
    • More than 100 SPACs have gone public so far this year, raising more than $44 billion in aggregate
    • The first ever SPAC ETF (SPAK) began trading Thursday, launched by Defiance. 80% of its weighting will be towards companies that have already publicly listed through SPACs and the remaining 20% will be invested in new SPACs
    • Oaktree Acquisition Corp. (NYSE:OAC) announced October 1st a definitive business combination agreement with telehealth provider Hims & Hers for $1.6 billion
    • IG Acquisition Corp. (Nasdaq:IGACU) announced the pricing of its $300 million IPO October 1st

Bond Market Update

  • U.S. companies sold more debt during the third quarter of 2020 than ever before, extending this year’s record-breaking bond bonanza into the second half of the year even as some analysts predict a slowdown.
    • Investment grade corporate bonds had new issuance of $36 billion across 22 deals last week
  • High yield corporate bond issuance remains heavy with last week’s record new issuance of $25 billion, this brings September’s total issuance to $50 billion
  • Municipal bonds were the only fixed income asset class to outperform treasuries during the week
    • New issue supply totaled $10 billion and fund flows were positive for the 20th consecutive week at $499 million
    • According to Municipal Market Analytics, the market has sustained 18 straight sessions of mostly unadjusted benchmarks, the longest streak of such unprecedented low volatility since 1988.

Good News We’ve Been Reading

Economic Recovery Continues Across Globe

  • United States
    • U.S manufacturing activity continues to rebound, with the Institute for Supply Management showing the fourth straight month of expansion according to their purchasing managers’ index (September: 55.4)
    • Household income was up 2% in August compared to February, indicating growth even from pre-COVID levels
    • Economists estimate U.S. GDP grew at an annual rate of 30% or more over July through September
    • K-12 school coronavirus rates are much lower than those in their surrounding communities as reopening occurs across the country, including the country’s largest public-school district, according to the National COVID-19 School Response Data Dashboard
  • Around the Globe
    • Manufacturing in the Eurozone also saw an upturn according to the HIS Markit Purchasing Managers Index (PMI), rising 3.9% from August to September
    • Belgium: mask requirements were lifted in Brussels on October 1st
    • Germany: Economy Minister Peter Altmaier told reporters in Berlin he expects the economy to make a V-shaped recovery
    • Switzerland: began allowing gatherings of more than 1,000 people on October 1st
    • Israel: emerges as a top destination for gap-year students displaced by pandemic, seeing a 40% increase in gap-year enrollment programs YoY
    • Japan: reaches out to South Korean administration to begin a more collaborative relationship surrounding coronavirus and North Korean relations
    • China: recorded 9.5% growth in outbound shipping in August compared to the previous year
    • China: expects more than 600 million trips, including a 10% YoY increase in domestic flights, as the “Golden Week” holiday begins October 1st
    • South Korea: recorded exports in the first 10 days of September at just 0.2% below the same period last year
    • India: sees export orders grow as Purchasing Managers Index showed a 9.2% increase from August to September

Vaccine Development Update

  • The push for a Coronavirus vaccine continues with a total of 43 vaccines reaching a human clinical-trial phase and at least 91 preclinical vaccines under active investigation in animals
  • Novavax launched a Phase 3 trial enrolling 10,000 volunteers in the UK, expecting to deliver results at the start of 2021
    • A larger Phase 3 trial is in development to launch in the US during October
  • Johnson & Johnson enters Phase 3 trials with up to 60,000 volunteers being enrolled in the US
    • Vaccine induced neutralizing antibody responses provided complete or near-complete protection against virus infection in the lungs and nose in preclinical trials
  • Pfizer starts Phase 3 trial in South Africa with the program set to enroll about 44,000 participants globally
    • 35,000 volunteers have already enrolled following the US Food and Drug Administration (FDA) approval
  • AstraZeneca and Oxford’s co-development Phase 3 Trial is put on pause after adverse event
    • FDA continues to be thorough in its approach to participant safety, widening the scope of the initial probe

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

  • U.S.-based therapy application, RecoveryRecord, assists individuals with eating disorders with virtual therapy as the pandemic curbs in-person therapy visits
  • U.S.-based cyber security startup Axis Security sets up work-from-home employees to safely access company networks
  • Mexico-based ecommerce platform Jüsto raises another $5 million in early-stage funding for its on-demand online-only grocery store as the company looks to expand across Latin America
  • Taiwan-based ecommerce travel platform KKday focuses on curating “stay-cation” activities
  • French-based communication platform Klaxoon is a visual interface that lets coworkers work together during a video call, but instead of staring at each other’s faces, you get a shared canvas for presentations and idea-sharing

Positive Encouragement

  • “Discouragement and failure are two of the surest stepping stones to success.” – Dale Carnegie
  • “How wonderful it is that nobody need wait a single moment before starting to improve the world.” – Anne Frank
  • “Each morning when I open my eyes I say to myself: I, not events, have the power to make me happy or unhappy today. I can choose which it shall be. Yesterday is dead, tomorrow hasn’t arrived yet. I have just one day, today, and I’m going to be happy.” – Groucho Marx
  • “A ship is always safe at the shore – but that is NOT what it is built for.” – Albert Einstein

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.

Stay informed with ArkMalibu and receive periodic news, reports, and invitations.