Jefferies Financial Group (JEF.N) said it expects a jump in mergers of equals in the current coronavirus-stricken economic environment as companies look at cost-effective ways of increasing their scale to survive the crisis.
The mergers-of-equals transactions can help companies cut expenses and boost earnings without the “stigma of transacting at lower values, premiums or multiples,” Jefferies said in its July newsletter.
The coronavirus crisis has caused demand to plummet across industries such as retail and travel, hurting revenues and making it difficult for many firms to raise new capital.
“In the current economic environment, scale has become only more critical, as the impact of the COVID-19 pandemic has cast a harsh spotlight on sub-scale enterprises,” Jefferies said.
The U.S. investment bank also said that a “V-shaped” economic recovery was a long shot, given the risks of withdrawal of fiscal stimulus and a second wave of virus infections.
A new wave of cases, however, could trigger more monetary easing from the U.S. Federal Reserve and as a result strengthen stock markets, Christopher Wood, head of global equity strategy at Jefferies, said.