To say that 2020 was a challenging year would be a massive understatement. Yet, in terms of M&A, it was not as dramatic as one might have expected. Deals were generally postponed rather than cancelled, with just a 10 percent fall in the number of transactions.
When I think back to the end of 2019 and beginning of 2020, we had a trade war between the US and China, elections coming up in the US, and Brexit negotiations still in full swing. Yet, despite the uncertainties, interest rates were persistently low and there was ample cash available in the M&A market, setting the scene for a generally strong M&A year.
Then the pandemic hit. This is not the place to go into detail, but we must acknowledge what a difficult – and in many cases tragic – year it has been for so many people, on both a business and a personal level. Our genuine sympathies go out to all those who’ve been negatively impacted, and those who may be continuing to feel its impact.
Looking at matters from an M&A perspective, early 2020 saw a definite slowdown in activity as management attention was diverted to more urgent matters, and people watched closely to see how the economy would respond.
As 2020 progressed, it became clear that many deals were put on hold, pending greater certainty. Then towards the end of the year, activity began to pick up as businesses realized that things were not going to improve imminently, and so a decision was needed as to whether a transaction should progress or be called off. From what we saw in the market, the decisions were generally to proceed. In other words, while the pandemic caused many transactions to be delayed, they were not cancelled completely.
This explains why there is only a 10 percent drop in the number of deals overall compared to 2019. And while total deal values fell significantly, this is in large part due to an absence of the types of mega-deals we’ve become used to seeing in prior years.
Strong market fundamentals suggest deal activity will continue to be robust in 2021. Interest rates remain low. Banks have learnt how to factor COVID-19 implications into their lending. And businesses are learning to manage in the new environment, even if they’ve not yet fully adjusted.
M&A continues to be a priority for many corporates, including for Private Equity houses, many of whom have considerable dry powder. The disposal of some Private Equity assets that might have happened in 2020-21 has been pushed back by one or two years.
We expect a more intensive focus on business models that are future-fit and shock-resistant. Such resilient sectors may include software, e-commerce and B2C businesses more generally. In short, those that look to reduce the value chain and/or leverage digitalization.
This year, we have split our Clarity on Mergers & Acquisitions into three sections:
We hope you will find our insights interesting and useful. Don’t hesitate to contact us if you would like to discuss the specific implications for your own M&A strategy and plans.