As 1Q20 came to a close, the initial effects of COVID-19 were only beginning to be felt across the global economy. Its full impact manifested in the second quarter, however. According to Mergermarket's Global & Regional M&A Report, deal volume dropped from 4,308 deals in 1Q20 to 2,630 in 2Q20 and deal values plummeted to USD 308.9bn from USD 592.6bn in the previous quarter.

Contrasting 1H20 to 1H19, deal volume fell 32% (6,938 vs. 10,155 transactions), while deal values declined 52.7% (USD 901.6bn compared to USD 1,907.5bn). Such activity levels were most evocative of 2008 and 2009. And while the Global Financial Crisis remains the best historical comparison, COVID-19 has generated its own unique brand of mayhem.

Debt and Equity Capital markets step in. Although M&A struggled, debt and equity fundraising had a strong pulse. After markets pulled back in March, they came back with a vengeance in many regions. Globally, leveraged loans and high yield bond issuance reached more than USD 1trn globally in 1H20, with nearly 44% taking place in 2Q20, according to figures by Mergermarket sister publication Debtwire. In equity capital markets, May was the busiest months for equity issuances in the US since January 2019, according to sister company Dealogic.

Regional disparities have created near global parity. As the virus spread in waves around the globe, its impact was felt differently across various regions of the world. First to be impacted by the virus, China saw the least impact on its global buying activity. Year over year, the north Asian country saw deal count fall by just 7% (down to 713 from 770), and deal values down 20.1% (USD 108.3bn versus USD 135.6bn). China experienced the earliest onset of—and recovery from—the virus, providing a hopeful note that as other countries and regions recover, they too will show an improving deal environment. Resurgences of COVID-19 could constrain the upside, however.

The Americas, dominated by the US, was the biggest decliner. Its share of global M&A by value declined to 33.4% Year-to-date 2020 compared to 52.8% in 2019. Not only did the lockdown impact economic productivity, but also the US is facing high levels of political uncertainty from the looming presidential election and widespread, large-scale demonstrations and protests. With the falloff in US activity, the rest of the world saw their global market share increase. Europe (with a 32.3% market share) slightly edged out Asia (27.7%) in seeing the largest market share gains.

A crisis, certainly, but not a financial one. To see the differences between COVID-19 and the Global Financial Crisis, one need look no further than the second top performing sector of 1H20—financial services (USD 153.8bn, slightly lower then top sector Industrials & Chemicals at USD 158.8bn). Even accounting for a sizable fall in deal count, the Financial Services sector more than doubled its global market share to 17.1%. Six of the largest financial services transactions announced in 1H20 are investing or banking related, including Morgan Stanley’s USD 13bn bid for ETrade Financial, Kuwait Finance House’s USD 9.8bn offer for Ahli United Bank, and Franklin Resources USD 5.4bn bid for Legg Mason. Meanwhile, Aon [NYSE:AON]’s USD 35.6bn plan to merge with Willis Towers Watson [NASDAQ:WLTW] is an example of one the few large transactions that has managed to move forward.

TMT also increased its relative share of global M&A (from 15.4% to 22.4%), which is not surprising as businesses became virtual and consumers were driven online. Sectors such as Consumer and Leisure have been impacted, falling a combined 64.3% by value (from USD 143.6bn to USD 87.4bn) and 66.1% by deal count (from 1,415 to 852 deals) year of year. Energy, Mining & Utilities was hit hard (declining 67.6% in value and 33.9% in volume) as commodities reacted negatively when energy demand dried up. Construction was the only sector to turn in a positive number achieving a 5.7% increase in deal value despite a one-third decline deal volume.

Big deals struggle while the mid-market remains resilient. Despite declines across all sizes of deals, large deals suffered the most so far in 2020. Transactions of USD 2bn or greater declined nearly two-thirds quarter on quarter in 2Q20 - 18 deals compared to 54 in 1Q20. Several high-profile deals fell victim to the downturn, such as Xerox’s [NYSE:XRX] USD 35.5bn bid for HP [NYSE:HPQ], Walmart’s [NYSE:WMT] divestment of a majority interest in UK-based Asda, and France-based Covea Mutual Insurance’s USD 9.05bn offer for PartnerRe [NYSE:PRE], the Bermuda-based reinsurer from Italy’s Exor [BIT:EXO].

Smaller mid-market deals saw significantly less impact during the height of the virus lockdown. Quarter on quarter deals under USD 2bn declined just 23.9% on volume (down to 1,297 deals from 1,704) and 28.3% on value (USD 203.5bn versus USD 284.0bn).

Private Equity outperforms. Going into 2Q20, Mergermarket expected private equity to remain active even during the uncertainty. And sponsors didn’t disappoint. Despite experiencing a more severe drop compared to the Global Financial Crisis, private equity still managed to achieve its highest half-year market share of total global M&A (19.2%) by volume since 2005 because the broader market experienced a steeper decline.