United States / Coronavirus Insights
Industry Impacts: Deal Flow and Debt Relief Perspectives

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by Cecilia Fernandez, Lead Industry Research Analyst
Apr 13 2020

The COVID-19 (coronavirus) pandemic has already made an adverse impact on global markets and is expected to result in an unemployment rate of 8.9% in 2020, according to IBISWorld estimates. The travel industry has been hit the hardest, with airlines and consumers cancelling and postponing flights and the government imposing travel restrictions. According to IBISWorld, both the Domestic Airlines (IBISWorld report 48111a) and International Airlines (48111b) industry revenue are anticipated to decline 9.0% and 6.3%, respectively, in 2020 alone due to the escalating outbreak and drop in consumer confidence. Before the outbreak, the travel industry was anticipated to grow amid rising in per capita disposable income and higher expected volumes of domestic and international trips.

 

 

Furthermore, the compulsory closure of restaurants, theatres and nonessential businesses has further increased unemployment as operators try to cut down costs to stay afloat. As a result, the services sector is also anticipated to take a hit as consumers quarantine and stay home in fear of the pandemic, limiting demand for services. However, when the pandemic is contained and consumer spending rebounds, the restaurant and services sector are anticipated to return to positive, pre-coronavirus trends.

 

M&A activity comes to a halt

US merger and acquisition activity halted in March as the rising pandemic shifted executive’s focus from deal making to saving their own companies. According to the Financial Times, executives are prioritizing their employees and customers and M&A deals have dropped 51.0%  in the quarter compared to that of last year. After the virus, even though M&A activity is anticipated to rebound faster than the 2008 financial crisis, there will be some delays. As companies struggle to stay afloat and turn to federal aid in order to prevent drastic declines in margins, there will likely be potential M&A targets in the near future. Once the pandemic has been contained, the recent declines in company valuations could increase M&A activity, especially in technology companies such as Amazon, Microsoft and Google, which might fill in gaps through acquisitions.

 

 

Distressed industries seek debt relief

Airlines will receive debt relief from the Coronavirus Aid, Relief, and. Economic Security (CARES) Act stimulus package, which provides $425.0 billion for distressed industries from the Federal Reserve, $75.0 billion in loans ($25.0 billion of which is allocated to passenger air carriers) and $25.0 billion in direct grants. Furthermore, the Emergency Small Business Loans provides funding up to $10 million for eligible nonprofits and small businesses. The Museums industry (71211) is also included in the economic relief package as museums are losing a collective $33.0 million per day according to the American Alliance of Museums. Smaller businesses like mom-and-pop shops that do not have the financial means might not be able to survive the pandemic. However, distressed industries that benefit from the stimulus package might be able to keep afloat without filing for bankruptcy.