M&A activity is accelerating. With valuations marching higher than much capital live, companies must pay close attention to the basics to make value.
By many indications, subsequent six to 12 months might be busy ones for mergers and acquisitions. Companies anticipating economic fallout from the worldwide coronavirus pandemic have an accumulated fund of quite $7.6 trillion in cash and marketable securities—and interest rates remain at record lows. Pent-up demand may kick in because the availability of vaccines increases the trifecta of CEO, investor, and consumer confidence. For companies facing imminent distress, consolidation could also be inevitable. For others, dealmaking could also be the simplest, and fastest, thanks to filling urgent gaps within the skills, resources, and technologies they have to make value down the road.
Headwinds do remain. Ongoing waves of COVID-19 still trigger lockdowns. High unemployment is probably going to moderate demand for products and services. Global trade tensions, regulatory pressures, and a presidential transition within the US create uncertainties. a robust pipeline of IPOs offers owners an alternate to M&A deals as an exit path. and therefore the economic recovery will likely be uneven across different sectors and regions.
Yet overall, the prognosis for dealmaking in 2021 is marked by opportunity and transformation—and competition for a few companies might be fierce. The pandemic and up to date geopolitical developments have already led most companies to an equivalent conclusions, pushing both deal volumes and values higher within the last half of 2020, particularly for digital and technology assets. Many stock exchange indices, including the Dow Jones Industrial Average, NASDAQ Composite, S&P 500, Shanghai stock market and Nikkei 225, are at or near all-time highs. IPOs are buoyant: DoorDash, for instance , closed its first day of trading 86% above its initial asking price and Airbnb closed its first day up quite 112%.
Following a turbulent year in dealmaking, 2021 is probably going to be marked by growing polarisation in asset valuations, the acceleration of deals in digital and technology, and increasing attention to environmental, social and governance (ESG) matters.
With rich valuations and intense competition for several digital or technology-based assets, dealmakers may feel compelled to require a more proactive—even aggressive—approach to accumulate assets they need. Less desirable assets could see distressed sales at lower valuations, particularly assets in sectors more adversely impacted by COVID-19 or with business models that are not any longer viable given the structural changes happening.
Other factors expected to possess a consequence on deal valuations and M&A activity include a rise in restructurings and therefore the continuation of a hot IPO market, particularly the utilization of special-purpose acquisition companies (SPACs) to boost capital.
The valuation of assets remains one among the most important challenges to M&A success—especially when deal activity accelerates and competition heats up, as we saw within the last half of 2020. Dealmaking rebounded from June 2020 and remained strong through to year-end across all regions. within the fourth quarter of 2020, deal volumes and values were up by 2% and 18%, respectively, compared with an equivalent quarter the prior year. Across Asia-Pacific, EMEA and therefore the Americas, M&A activity increased by between 17% and 20% during the last half of 2020 compared to the primary half the year.
A significant increase within the number of announced megadeals—defined as deals with an announced deal value in more than $5 billion—contributed to the rise in deal values within the last half of 2020. there have been 32 megadeals within the third quarter of 2020, with a further 25 megadeals within the fourth quarter. The combined deal value of the 57 megadeals announced within the last half of 2020 amounted to $688 billion. In contrast, there have been 27 megadeals within the half of the year, with a combined deal value of $266 billion.