Viral impact: How COVID-19 is affecting M&A and private equity

By Mary Kathleen Flynn, The Middle Market

The Dow Jones Industrial Average fell another 800 points on Tuesday after Monday’s 1,000-point plummet, underscoring fears that the manufacturing shortages caused by the coronavirus will have far-reaching global ramifications. It’s increasingly clear that COVID-19 will have a significant impact on the world’s economy.How it will play out in M&A and private equity is difficult to discern this early in the spread of the virus. To get a sense of the ramifications for the middle market, Mergers & Acquisitions examines several factors, including the current impact on China’s economic growth; how the virus was discussed in the earnings calls of U.S. public companies in January and February; and the views of two prominent dealmakers who are based in Hong Kong. As this is an ongoing story, we’ll continue evaluating the economic and business effects.

First, let’s consider the impact of the earlier severe acute respiratory syndrome virus. SARS claimed around 800 lives throughout the world and shaved 0.5 to 1 percentage points off China’s growth in 2003. Back then, China was the world’s sixth largest economy. Today, it is the second, behind only the U.S.

Analysts are already forecasting slowed growth for China, due to COVID-19. While the country’s economic growth was 6.0 percent in the fourth quarter of 2019, it may fall to as low as 3.5 percent in the first quarter of 2020, if the spread of the virus is not contained fast enough for manufacturing production to resume to normal levels, Morgan Stanley analysts wrote in a Feb. 19 report. While factories had started to come online, analysts found that production had only reached 30 to 50 percent of normal levels.

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