Reasons for Optimism in M&A and Capital Markets: Final Update

We have enjoyed sending you reasons to be optimistic during the uncertainties and tribulations of the year 2020. We hope our letters have provided a bright spot in what may have been an otherwise dark season. We look forward to the expected joy and progress 2021 will bring. We will overcome, rise stronger on the other side.

Please read on for a brief summary of the M&A market, the economic outlook, and reasons to be optimistic. This will be our last “good news” letter. We look forward to sending you a variety of other communications in the new year.

Reasons for Optimism in M&A and Capital Markets

• 244 deals closed in the U.S. & Canada over the past 7 days (last week 343 deals closed)
• U.S. economy added 245,000 jobs in November, bringing the unemployment rate down to 6.7%
• Consumer spending, the largest contributor to GDP, shows green shoots evidenced by strong Black Friday/Cyber Monday sales
  • Shopify, a platform that’s home to 1+ million merchants, reports Black Friday sales increased 75% annually to $2.4 billion
    • YTD, the stock is up over 160%
  • Shopping preferences continue to shift from brick and mortar to ecommerce, causing companies to expand logistics/delivery infrastructure to keep pace with increasing demand
    • Major investments in warehouse infrastructure suggests shift is permanent
    • Private equity firm KKR is close to acquiring nearly 100 warehouses in U.S. for +$800 million

December 11^th Stock Market Update

• Despite a global pandemic, major equity indices S&P500 and Nasdaq Composite show strong year-to-date performance of 13.5% and 37.5%, respectively
• IPO market shows continued strength through 2020, with completed offerings by DoorDash and Airbnb, and highly anticipated offerings from Affirm, Roblox, and Wish
  • DoorDash shares rose 86% on its first day of trading (Wednesday), bringing its market cap to $72 billion
  • Airbnb’s stock price more than doubled in its IPO, ending the day with a market cap of $100 billion
    • Greater than the combined market value of Marriott International, Hilton Worldwide, and Hyatt Hotels
• Special Purpose Acquisition Companies (“SPACs”) continue to set records as December nears an end
  • 221 SPACs are currently searching for targets, raising funds, or have completed an acquisition
  • Represents a 275% increase from number of SPACs (59) in 2019
  • $75.3 billion in proceeds have been raised via this investment vehicle year-to-date
• Tesla joins the S&P 500 with a market cap of more than $594 billion
  • GM’s market cap is $61 billion, and Ford’s market cap is $36 billion

December 11^th Bond Market Update

• Risk appetite increased last week, evidenced by increasing U.S. treasury yields
• Municipal bonds issued last week totaled $9.8 billion, with fund flows positive at $201 million
  • New Jersey Transportation Trust Fund Authority issued $1.5 billion transportation program bonds (rated Baa1/ BBB)
  • Deal so well received in initial pricing that underwriters lowered yields as much as 20 basis points in some areas, signaling the markets strong desire for yield
• High yield index has now posted gains for five weeks in a row, and in nine of the last ten weeks
  • Outperformance led by lower-quality (CCC rated) credits and virus-vulnerable sectors, including department stores, oil field services, recreation, and travel
• Emerging market debt continued strong November performance into the beginning of December, as spreads narrowed and inflows totaled $2.7 billion
  • Local markets buoyed by further weakening of the U.S. dollar versus EM currencies

Good News We’ve Been Reading

Economic Recovery Continues Across Globe

United States

• Reuters poll of leading economists predicts U.S. economic growth will lose momentum this quarter, but will reach pre-virus levels within 2021
• Austin, TX thrives, attracting more corporate jobs and remote workers than ever before, as business relocations are expected to create nearly 10,000 jobs (the city’s highest figure on-record for a single year)
• Mortgage rates remain at record lows, with 30-year fixed rates averaging 2.71% in the week ending 12/10/2020
• Median home sale prices in the U.S. increased 16% YoY at the end of November, the highest price point on record, and pending home sales increased 28% YoY in the same time period

Around the Globe

• Combination of vaccine campaigns, health policies, and government financial support are expected to lift global GDP by 4.2% in 2021, after a fall of 4.2% in 2020
• United Nations world leaders in General Assembly hold two-day special session to build strong global recovery and seize opportunity for change together
  • Calls for stimulus package worth at least 10% of global GDP, debt relief for all states in need, equitable access to vaccines, eased debt burdens, and safeguarding the environment
• European Union breaks deadlock on budget and virus recovery fund, after weeks of resistance from Poland and Hungary
  • Details of the $1.3 trillion seven-year budget and nearly $1 trillion recovery package to be released
  • Government also cites rule allowing U.K. to authorize vaccine independently, before the end of Brexit transition period on December 31^st
• Japan announces $708 billion stimulus package, targeting a reduction of carbon emissions, the fostering of digital innovations, credit guarantees and loan facilities for small firms facing strains due to the virus, and boosting of GDP by approximately 3.6%
• China’s manufacturing PMI rises to 52.1 in November, its highest reading since September 2017, and nonmanufacturing PMI rises to 56.4 in November, its highest level since June 2012
• India: global financial services group Nomura predicts India to be the fastest growing Asian economy in 2021, with an estimate of 9.9% GDP growth in 2021
• Italy: economy rebounded in third quarter with growth of 16.1% and is predicted to grow 5.2% in 2021, despite a slower Q4 due to rising virus cases
• Spain: rural Airbnb locations see new life and rise in bookings after tighter restrictions are placed in Barcelona and Madrid, seeing average prices of a night stay rising by 10% – 30% across various locations
• France: government pledges additional funds to help businesses that are forced to remain closed, as restaurants and gyms stay closed until at least January 20^th, 2021, and no end date has been given for venues such as bars and night clubs
• Russia: vows to administer 2 million+ doses of its Sputnik V vaccine through covid-19 hospitals built by the Defense Ministry, while also seeking approval for use in 40 other countries

Vaccine Development Update

• FDA advisory panel endorses and recommends broad distribution of Pfizer and BioNTech’s vaccine, clearing the way for emergency authorization as early as today
  • Vaccines and Related Biological Products Advisory Committee approves with 17-to-4 vote
  • Distribution already underway in the U.K., vaccinating front line health-care staff and high-risk population members first, and serving as a test case for vaccinating at a high speed and scale
• Moderna suggests vaccine has 94.4% efficacy and few side effects, with 20 million doses available for U.S. market should emergency use authorization be obtained
• Johnson & Johnson expects results from final trial of single-dose vaccine in January, cuts trial size from 60,000 to 40,000 volunteers due to pervasiveness of the virus at this time
• Novavax vaccine still in the running, offering attractive unit price of $16/dose, compared to $37/dose for Moderna’s vaccine and $19.50 / dose for Pfizer’s vaccine
• AstraZeneca and Oxford’s co-development reports 70% efficacy overall, suggesting need for further trials

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

• U.S.-based Armstrong World Industries, in partnership with Medical Illumination International, creates 24/7 Defend ceiling & air-purification system, removing 97% of pathogens in first round of cleaning
• U.S. and Israel-based predictive maintenance platform Augury uses AI to analyze machines for mechanical errors
• Canada-based grocery delivery service Inabuggy develops 3D virtual shopping experience, allowing customers to “walk” aisles of upscale grocery stores
• Sweden-based Umea Institute of Design, in partnership with Electrolux, develops Muho home sanitation solution for hands and phones
• Sweden-based digital platform Ombori allows retailers to create seamless multichannel experiences in physical spaces

Positive Encouragement

• “Cultivate the habit of being grateful for every good thing that comes to you, and to give thanks continuously. And because all things have contributed to your advancement, you should include all things in your gratitude.” ―Ralph Waldo Emerson
• “Our doubts are traitors and make us lose the good we oft might win by fearing to attempt.” —William Shakespeare
• “You must live in the present: Launch yourself on every wave. Find your eternity in each moment. Fools stand on their island of opportunities and look toward another land.” ―Henry David Thoreau
• “The future belongs to those who believe in the beauty of their dreams.” —Eleanor Roosevelt
• “We can easily forgive a child who is afraid of the dark. The real tragedy of life is when men are afraid of the light.” ―Plato

ArkMalibu is happy to answer any questions you may have and to offer guidance during this challenging time.

We send best wishes to you and yours for safety, health, joy, and gratitude as 2020 comes to a close.