Last updated on June 23rd, 2023 at 08:09 am
INTRODUCTION
Deal activity was heavily affected by the Covid-19 pandemic. In the earliest months of the pandemic, M&A virtually ground to a halt. Shareholders and management teams shifted their attention to the priorities of just keeping employees safe and businesses running. Companies put deals in progress on the shelf or cancelled them outright. Lacking both the bandwidth and a clear view of the future, they paused pursuing new deals. Cross-border activity slumped, down 14.2% over 2019, as travel restrictions changed deal making logistics and countries acted to protect their borders.
During the second half of the year, decision makers began getting a clear picture of the changing world as well as consumer preferences and the importance of acting fast to adapt to and buy the new critical capabilities that would help their businesses face the changing realities and emerge out of the downturn as winners. Dealmakers applied new tools and processes to an almost exclusively remote work environment. Globally, after falling 25% in the second quarter compared to the first quarter, M&A activity rose 90% in the second half of the year, ending the year with only a 3% decline in volume from 2019.1Deals on the shelf were put back into action as governments pumped stimulus funding, keeping deal financing accessible. Deal value rose by more than 30% in both the third and fourth quarters. Private equity firms entered 2020 with record levels of cash on hand, which allowed them to look for opportunities in the midst of a tumultuous market.
2020 M&A activity also varied tremendously depending on industry. Many oil & gas companies, particularly hard-hit by the pandemic, had to make tough choices and sell off assets. Meanwhile, some tech companies benefited from higher valuations to strike it big. Technology was the winning sector for M&A activity in 2020, dominating market share as the world moved into an online environment. Globally, the Technology, Media and Telecommunications (TMT) sector clocked $850 billion in deal value in 2020, almost twice that of the next best sector, Energy, Mining and Utilities
Governments play a growing role in M&A
Regulation has steadily expanded well beyond the traditional mandate of assessing the impact of a deal on market power and consumer benefit. Regulatory powers have moved into concerns such as national interest, data privacy, and the impact on future competition.
In 2020, governments around the world continued to expand their scrutiny of M&A. Moreover, the extension of government powers and scrutiny is not limited to healthcare, technology, defence, and other sensitive industries alone.
2021 M&A Outlook and Forecasts
There are many different factors that impacted the 2021 M&A activity, they include:
- The economic and tax policies of governments.
- The increasing influence of Asia-Pacific companies in M&A deal making, which in the near future is expected to become the largest M&A target region for investment. However, many analysts see no reason why the M&A recovery that began in the second half of 2020 will not accelerate in 2021, as corporate and private investors have access to capital and can pursue deals to build scale and expand scope.” In addition, the experts expect a rise of M&A trends in 2021 such as:
- A continued increase in “megadeals” (M&A transactions worth $5 billion or more), especially among healthcare and technology companies that helped drive the H2 2020 M&A recovery.
- A continued increase in cross-sector acquisitions.
- An increase in strategic divestitures as a source of M&A targets—for example, energy companies selling assets such as natural gas pipelines or banks selling off their insurance arms.
- Data protection and related regulations
This along with an abundance of capital, is likely to shape the M&A landscape well into 2022-and may put corporate, PE and SPAC buyers on a collision course as they compete to acquire technology, capabilities, and other sources of advantage. The competitiveness of the market reflects a growing understanding among business leaders that creating value requires more than cost-cutting—and they are willing to pay more for revenue synergies that fuel long-term growth. Yet, as prices rise, along with an ever-increasing pressure to get deals over the line, they’ll need to be mindful of the risk of overpaying.
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