November Was Full Of Takeover Deals And Debenhams Is Closing Down

November Was Full Of Takeover Deals And Debenhams Is Closing Down

about 3 years ago3 mins

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Fresh data on Tuesday showed there were more takeover deals in November than in any other month this year – but wait, there’s more ⚠️

What does this mean?

After a spring in which everything came grinding to a standstill, dealmaking has bounced back with a vengeance. Companies across the world have already announced $760 billion worth of acquisitions this quarter alone – the most so far for the period since 2016.

There are a few reasons for all that activity. Some companies might be trying to snag a struggling business while it’s going cheap, while others – like European banks – might want to bolster their operations ahead of the pandemic-driven downturn 🤷‍♀️ Or it might have nothing to do with coronavirus, and the company might just be sticking to its strategy of buying knowledge and skills they don’t have in house. That’s arguably what Salesforce and Facebook – which announced it was buying customer relationship management firm Kustomer on Tuesday – are doing.

All regions have seen a strong recovery in dealmaking in the second half

Why should I care?

Acquisitions tend to cause both companies’ share prices to shift significantly, but usually in opposite directions 🤔 The target generally sees its stock rise, bringing it more in line with the offer on the table. But the buyer’s share price tends to fall, reflecting the extra risk the company’s taking on – either because investors think it could be paying over the odds, or because it’ll somehow have to successfully integrate the business with its own.

Some economists have another theory about all these deals: company bosses might’ve had more time on their hands to come up with acquisition strategies during lockdown 🔒 Of course, that also means they might be trying to outdo each other with bigger and bigger deals. But that’s not necessarily the way to go, says McKinsey: the consultant has found that lots of smaller acquisitions over time – rather than one big bonanza – are the ones that add the most value.

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Debenhams Is Closing Down

Debenhams image

On Tuesday, one of UK’s best-known department store retailers Debenhams announced that it’s run out of money and is shutting up shop ⛔️

What does this mean?

Debenhams’ collapse came the day after British retail empire Arcadia – which owns Topshop, Miss Selfridge, and more – announced it was going under. Between them, they’ll take more than 25,000 jobs down with them 🦠 Slow sales during the pandemic proved to be the final blow for both companies, but they were under a lot of pressure even before coronavirus broke out: their physical stores have been costing them too much money, and they’ve been sluggish to adapt to a British customer who – lockdown or no lockdown – has been spending more and more of their hard-earned quid online.

Jobs at risk in British retail
Source: Bloomberg

Why should I care?

There have been some high-profile retail casualties in the US too, with J.C. Penney and J. Crew both filing for bankruptcy earlier in the year 📄 But for those that survive, there might be better days ahead: investors are betting that typical spending habits will return when vaccines arrive. That might be why shares of some bruised retailers – like department store Macy’s – have been climbing higher since news of Moderna and Pfizer’s successful trials broke.

Macy’s stock
Source: Google Finance

Ecommerce has made the “Friday” in Black Friday more and more flexible over the last few years, and the pandemic might’ve just bent it to breaking point. Retailers – which make 20% of their annual sales in November and December – have been spreading out their in-store deals over a longer period of time this year to limit holiday shopping crowds 📆 So while Black Friday sales numbers are usually a good indicator of the retail sector’s fourth-quarter fortunes, investors will have to wait a bit longer for clues this time around.

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