Experts Predict Increased Optimism for M&A Activity This Year

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Despite the social and fiscal challenges of last year, 2021 is looking bright from a mergers and acquisitions (M&A) perspective. Based on surprisingly robust activity in fourth quarter of 2020, many experts are reflecting on last year’s strong finish and forecasting increased M&A activity for the first half of 2021 and beyond.

Earlier this year, Mergermarket, the leading provider of M&A data and intelligence, released its 2020 global report, which revealed that $2.2 trillion of overall M&A activity in the second half of 2020 represented the highest half-year figure on Mergermarket record. Meanwhile, the $1.2 trillion announced in the final quarter was the highest quarterly value since the second quarter of 2007.

In contrast, M&A activity in the first half of 2020 was subdued ($971 billion), leading to an overall 6.6% year-on-year decline by value. Amid the social and economic disruptions caused by COVID-19, deal count was down 15.5%, from 20,767 to 17,545. While a few sectors fell, others rose, making it a bumpy ride for deal professionals.

Technology, media, and telecommunications (TMT) climbed 56.8% by value compared to the previous year, from $543.4 billion to $851.8 billion, equivalent to more than a quarter of overall global activity. Volume, on the other hand, declined slightly to 3,943 deals. The next-best performing sector was energy, mining and utilities (EMU), which also saw a 3.8% increase by value to $477.7 billion, but a 13.8% decline in deal count to 1,326. The industrials and chemicals sector rounded out the three best performing sectors in 2020, even with a 27.1% drop from the previous year - from 3,791 to 3,023 transactions.

Although M&A markets went into stasis, debt and equity capital markets came alive. In addition to a significant volume of high yield bond issuances and secondary equity offerings, special-purpose acquisition companies (SPAC) became the phenom of the second half of 2020, particularly in the U.S. A total of 255 SPACs were launched in 2020, raising $83.1 billion, compared to $15.5 billion across 73 listings in 2019, according to financial markets platform Dealogic data.

If there was a “winner” in 2020, it was megadeal professionals. Deals of $5 billion or greater experienced an impressive surge, increasing from 91 in 2019 to a total of 111 in 2020, with 79 of them occurring in the second half. This represented the second-highest number of such large deals since 2007, only behind 2015 (127 deals).

Meanwhile, smaller-sized transactions saw double digit declines across the board. In particular, deals under $250 million experienced a 12.1% decline in value and 1,270 fewer transactions compared to 2019. In spite of the pandemic, global private equity investment, buoyed by a reported dry-powder of $1.7 trillion, climbed to its highest annual value since the global financial crisis. In total, $608.7 billion was spent by private equity firms in 2020 across 3,509 deals, 3.3% up from 2019 ($589 billion).

“Even as 2020 recedes into the distance, its impacts continue to shape the market,” said Mark Druskoff, data-driven content coordinator (North America) at Mergermarket. “Corporates and sponsors alike spent their way through the crisis in the second half of 2020, with unprecedented levels of deal making in the final few months of the year.”

Experts agree that such a resurgence in the second half of 2020 bodes well for 2021. Earlier this month, SS&C Technologies Holdings, Inc., a global provider of services and software for the financial services and healthcare industries, introduced optimism-sparking results from the Q1 2021 issue of the “SS&C Intralinks Deal Flow Predictor,” an indicator of future M&A announcements.

“During an unquestionably volatile year, global M&A activity is showing continued signs of confidence and recovery,” said Ken Bisconti, co-head, SS&C Intralinks. “Due diligence activity in virtual data rooms points to double-digit growth in the first half of 2021, M&A deal announcements worldwide.”

From a global perspective, SS&C Intralinks predicts M&A activity in the first half of 2021, compared to the first half of last year as follows:

  • In Asia-Pacific, the number of announced M&A deals is predicted to increase by around 27% year-over-year (YOY), within a range of 20 to 36%, led by the financials, consumer and retail and industrials/ manufacturing sectors.
  • In Europe, the Middle East and Africa, the number of announced M&A deals are predicted to increase by 20% YOY, within a range of 12 to 31%. The strongest growth contributions are expected in the financials, energy, and power and mining, chemicals and materials sectors. M&A announcements in DACH, Eastern and Southern Europe and the U.K and Ireland are expected to increase.
  • In Latin America, a strong resilience during these times shows that the number of announced M&A deals is predicted to increase by 22% YOY, within a range of 13 to 32%. The financials, consumer retail and real estate sectors are predicted to lead any growth in announcements. Brazil is expected to carry outsized volume for the territory, though Chile and Colombia will also make major contributions.
  • In North America, a relatively tempered increase of 5% YOY is predicted for the number of announced M&A, within a range of -4 to 16%, led by the finance, healthcare, and industrials and manufacturing sectors.

Overall, the consensus appears to be that the pronounced increase in M&A activity in late 2020 bodes well for the months to come.

-Paul Williams Brand Publishing Writer