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2020 M&A outlook: Mega deals 'are off the table for now, people are focused inward'

Marc Cooper, PJ Solomon CEO joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss what he sees in the merger and acquisition market, in addition to what companies are doing 'to better position themselves' coming out of the coronavirus pandemic.

Video Transcript

ALEXIS CHRISTOFOROUS: Brian, COVID-19 has certainly put a dent in merger and acquisition activity. We saw deal-making fall 43% in April compared to the same time last year. But there are some signs here that M&A activity is starting to pick up.

Joining us now is Marc Cooper. He is CEO of PJ Solomon. Marc, always good to see you.

So I want to start with a bright spot here, and that is big tech. Despite the pandemic, despite increased scrutiny by regulators, we're seeing a lot of the big tech companies-- Google, Amazon, Apple-- out there making deals at the fastest pace in about five years. What is fueling the deal-making in big tech right now?

MARC COOPER: Great to be here, Alexis. Thank you. And Brian, good to see you. So I think the pandemic has accelerated a lot of trends. These are trends that have been going on for quite some time.

And they've exposed needs within the markets that are important for business, important for consumers. One of those is the continued use of technology as a mode of productivity gains, a mode of communications with consumers-- I mean with customers, with institutions. So I think it was the FAANG stocks plus Microsoft, I think, have 19 announced transactions this year, and many of which post-COVID.

So clearly there is a need for more technology. We're using technology in ways that we maybe had envisioned before, but never really adopted before. I could say just for my own little universe of PJ Solomon and the investment banking community, we formed an Innovation and Change Committee for how to go to market, how to be more connected with both our clients and our constituents in a way that will be driven significantly by technology-- I mean, exactly what we're doing here, right? And so I think there's going to be a lot of change.

In addition to technology, the communications industry, telecom has been a market that has soared since the pandemic. And again, it's because the pandemic has shown a bright light on the need for top-notch communications capabilities. And so valuations are up. The need for broadband is, as my partner says, table stakes in the marketplace.

And then the whole notion of being more productive and cutting your IT bills, which is the contrary to tech acquisitions, suggests people want to move more to the cloud and less to big infrastructure within their organization.

BRIAN SOZZI: Marc, big mega deals-- are they off-- are they going to be off the table for this year?

MARC COOPER: I hate to say this year, but they're certainly off the table now. And there's no great mystery, right? So I think people are focused inwardly.

It's interesting to hear some of our clients and some of the board members talk about moving from defense to offense, and the interest in taking advantage of opportunities. The truth is even if they move to offense, they're going to dabble in offense. They're not going to make big bets.

Big bets you could see are going to be more under the heading of mergers, of companies coming together to better position themselves to come out of the pandemic and be a survivor in an industry that's been disintermediated in some way. So you can see that in-- you can see that in retail. You can see that in oil and gas, where we're seeing a number of sort of distressed companies coming together to create savings and synergies and to create a platform that's going to withstand these-- the volatility in the oil markets.

So I would say, though, from the regular way, mega cap transactions we've seen over the bunch of years, you're not going to see many of those in the near term.

ALEXIS CHRISTOFOROUS: What about in health care, Marc? Because on Monday, we saw AstraZeneca and Gilead, there were reports that those two health care biotech companies were looking at a possible merger. Do you think that we're going to see consolidation within the health care space in 2020?

MARC COOPER: So health care has seen consolidation for the past number of years, again, both in the view of being more competitive in this marketplace. So clearly that's a trend that will continue. I think you'll also see in the health care space buy versus build concepts. So when it comes to drug development, it's sometimes easier to buy than it is to create a new drug.

So again, I think these trends will continue. The question is in what timetable? In the health care sector, they obviously haven't been hit as hard as other sectors during the pandemic.

In fact, one could argue they're doing well because this is a health care crisis. And as we have the race for the COVID vaccine, everyone's playing the sweepstakes. And so teaming up in joint ventures and potential acquisitions could be a mode of participation.

But I would say, though, given all the-- just the operational considerations of coming out of COVID and working within the environment-- which we're going to work within a COVID environment for quite some time-- really presents some interesting, interesting issues that these companies have to face on an operational basis. And it's hard, then, to think out-of-the-box, think strategically, thinking about playing offense when you have so much to deal with operationally.

ALEXIS CHRISTOFOROUS: All right, Marc Cooper, CEO of PJ Solomon, good to see you this morning.

MARC COOPER: Pleasure. Take care.