ByteDance Ltd.’s TikTok website is displayed on a smartphone in an arranged photograph.
Andrew Harrer | Bloomberg | Getty Images
As Walmart says it’s teaming up with Microsoft in the ongoing race to acquire TikTok, a new survey from CNBC finds that most CFOs believe this is, in fact, the time for companies to be striking such deals, rather than preserving cash. According to a new survey, sixty-five percent of CNBC Global CFO Council members say they disagree that “this is no time for dealmaking, and “companies should be preserving cash.” The response was largely driven by more than two-thirds of EMEA CFOs and half of APAC CFOs who disagreed with the statement.
Meanwhile, 40% of CFOs surveyed agree that the uncertainty surrounding the ongoing Covid-19 pandemic makes deals “extremely difficult” to do, which is likely a result of corporate distress in the first half of 2020. Earlier this year, Xerox dropped its bid to merge with HP citing the global health crisis. The Wall Street Journal reports that Chapter 11 business bankruptcy filings increased 26% in the first half of this year as more companies sought protection from creditors during the pandemic, according to legal-services firm Epiq Systems.
“The need to preserve liquidity and preserve cash is going to be very circumstantial based on where you are in the world, and the state of your own company,” said J. Neely, Managing Director and Global M&A lead for Accenture Strategy. “I think the world is starting to realize that we’re going to be operating this way for quite awhile … so, we’re going to have to figure out how to move on.”
The survey findings also come as TikTok’s Beijing-based parent company, ByteDance, is nearing an agreement to sell its U.S., Canadian, Australian and New Zealand operations in a deal that’s likely to be in the $20 billion to $30 billion dollar range, according to sources. Oracle is competing with Microsoft and Walmart to acquire the tech company. And while TikTok may be the most high-profile and dramatic deal in the news, Refinitiv data shows that more than 1,000 deals were signed in Asia-Pacific for the month of July, compared to 850 in the U.S. and 816 in Europe.
Among those deals are the $21 billion agreement in which Seven & i Holdings, the Japanese owner of 7-Eleven convenience stores, acquired Marathon Petroleum’s Speedway. German health-care company Siemens Healthineers also announced this month it was buying Varian Medical Systems for more than $16 billion. Despite ongoing economic uncertainty, Google Cloud and Blackrock also say that they are open to deals.
“If you look in June and July, all of a sudden we had a whole string of mega deals — deals over $1 billion, $10 billion — the likes of which we had not seen in awhile,” said Neely. “I think that actually brings some light back into the market a bit.”
The CNBC Global CFO Council represents some of the largest public and private companies in the world, collectively managing more than $5 trillion in market value across a wide variety of sectors. The Q3 2020 survey was conducted between Aug. 7 and Aug. 22. among 40 global members of the council.
As many companies look to strengthen their balance sheets in the second half of the year, the survey also found that half of all respondents agree that an environment of “corporate ‘haves’ and ‘have-nots’ sets up fertile ground for dealmaking,” driven largely by consensus from North American and APAC CFOs.
“I think in this world of ‘haves’ and ‘have-nots,’ if you’re a CFO, you really do have to be running that calculus in your head of keeping your balance sheet strong enough to weather the storm … you could find yourself in a world where you’ve all of a sudden become a ‘have-not’ and your back is up against a wall,” Neely said.
Asked about exits in the second half of the year and popular emerging investment vehicles such as SPACs, or special purpose acquisition companies, Neely asserted that deals will be “less about vertical integration or consolidation and more about using different kinds of deals to access capabilities and re-configure value chains,” pointing to technology as the biggest opportunity.
A SPAC is a blank-check company formed to raise funds to finance a merger or acquisition within a certain time frame, typically two years. The target firm will be taken public through the acquisition. Yesterday, the New York Stock Exchange won the approval from regulators to allow companies to issue new shares through direct listings such as these, creating a cheaper alternative to the traditional initial public offering.
“Any company that’s been able to pivot or embrace technology to ensure the viability of their operations has been in a good place there,” Christian Sealey of Morrow Sodali told CNBC’s “Capital Connection.” “We’ve started to see … globally, an increase in technology-related transactions, and I think that will continue.” According to the survey, 50% of CFOs agree that technology will be the sector that shows the biggest growth over the next six months.
“I think people have seen that a lot of their fundamental strategies are still holding water for the kinds of things they want to do, but this [pandemic] has also driven a tremendous interest in digital assets,” which Neely also points to as one of the most important opportunities in global M&A as companies continue to ensure their portfolios are well positioned for the future.