After a certain freeze in the first half of 2020, the mergers and acquisitions sector quickly renewed its activities, so it is expected that in 2021, the M&A market will be very busy.
Not even COVID-19 could put a stop to mergers and acquisitions, as the third and fourth quarters of the year saw some of the highest transaction numbers in history. The pandemic also did not have much of an effect on the investors’ approach to company valuations. Investors look upon the current situation as exceptional, but with minimal overall impact on the value of entities. Consequently, the multiples of sectors that have been showing dynamic growth during the crisis have declined, while those of the sectors most negatively affected by the pandemic have been growing. All this follows from an analysis by KPMG’s Deal Advisory team as well as from tens of interviews with strategic and financial investors.
2020: Dramatic fall did not materialise
- The overall number of transactions with European companies declined year on year, while their volume slightly increased, mostly thanks to strong transaction volumes in the second half of 2020. In contrast, real estate transactions in the second half of 2020 remained thoroughly paralysed.
- Transaction multiples did not change dramatically compared to 2019, and the feared scissors-like gap between the price expectations of buyers and sellers did not occur.
- The most significant decline was observed in transaction activities and company valuations utilising the EBITDA multiple in the consumer, service, and tourism sectors which were most tangibly affected by COVID-19.
- Distressed sales were not the driving force behind M&A transactions, and numerous companies achieved similar, or even better results than in the previous year.
2021: Acceleration of M&A activities
- Transactions that were halted or postponed in 2020 are returning to the bargaining table, along with their original price expectations and agreements.
- Low interest rates prevail on the market. Corporate investors, funds, local private equity fonds and family offices have sufficient capital and readily available investment sources at their disposal to invest in promising companies.
- Corporations will also want to undertake M&A transactions to stabilise their business, e.g., with divestitures of non-strategic, non-core assets or parts of their holdings (carve-outs) or demergers to accumulate capital resources for their core activities.
- The pandemic has also accelerated digitalisation. Through M&A, it has motivated companies that do not want to fall behind to adopt digital solutions for their business.
One big difference between the financial crisis in 2008 to 2010 and the current COVID-19 crisis is that in general, the value of companies has not plummeted, hence motivating sellers to go ahead with their plans. The M&A market thus remains highly active. Available liquidity and acquisition financing are seeing a large number of investors eager to do business. We thus expect that the M&A market will be immensely active.
Revival of European transaction activity in the second half of 2020
- Despite a significant decline in activity in the first half of the year, the overall volume of transactions grew by 5% in 2020. Nonetheless, there were fewer completed transactions than in 2019.
- In 2020, the transaction volume grew especially in the second half of the year and in Europe reached USD 552 billion, in comparison to the first half of the year, growing by almost 90%.
- Private equity investors were also most active in the second half of 2020, investing mainly in technology, telecommunications, and health care, as well as financial services, which year on year have seen their share in the overall volume of completed transactions grow.