- Spike in billion-dollar deals drives activity with North America and Europe dominating both outbound and inbound transactions
- China sees record value for domestic M&A as geopolitics mark inward shift
- Streaming wars and increasing focus on ESG fuel transactions in media and renewables sectors
Global mergers and acquisitions (M&A) activity hit an all-time high in the first six months of 2021, with deals worth more than US$2.6t, up from US$926b year-on-year and surging past the pre-pandemic five-year average (H1 2015-2019) of US$1.6t, according to new analysis by EY.
More than half of the activity was recorded in North America, which saw deals worth US$1.4t (up from US$345b in H1 2020) – almost double the average seen in the five years prior to the pandemic (US$784b). North America was followed by the Asia-Pacific region, which saw M&A values of US$446b, a jump from US$222b in H1 2020 and an increase from an average of US$317b in H1 2015-2019. Europe follows, recording US$412b, up from US$245b in H1 2020 and exceeding the H1 2015-2019 average of US$356b.
Despite a fall in the total number of deals announced, a spike in billion-dollar deals is the key driver behind activity so far this year according to the analysis, with 479 such deals announced. Despite many parts of the world economy still operating under restrictions, cross-border transactions have also staged an impressive comeback, increasing to US$688b from US$236b in H1 2020 and above the average of US$480 recorded in the five years prior to the COVID-19 pandemic.
Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions, says:
“Dealmakers are operating in a once-in-a-lifetime market. Having successfully navigated the challenge of transacting virtually, they find themselves in the sweet spot between optimism about economic prospects, progress in the vaccine roll out in key economies, low cost financing and record amounts of private capital dry powder.
“Dealmakers will always be on the lookout for innovative funding solutions, and SPACs started the year as the main show in town, particularly in ecommerce and electric vehicles deals. After recording peak numbers in the early months of 2021, SPAC activity has slowed recently, but the M&A momentum has continued pointing to a fundamentally strong market moving forward. The recent increase in larger PE deals and examples of collaboration within PE firms point to deals getting off the ground with an open mind when it comes to financing solutions.”
Optimism drives activity in North America and Europe, domestic deals power M&A in China
M&A activity, despite the strong headline figure, is not evenly spread across the globe. When it comes to outbound and inbound transactions, North America and Europe are the main centers of activity.
The US tops the list of countries with the highest outbound transactions value, having recorded US$221b in deals, up from US$77b in H1 2020 and more than double the average seen between H1 2015-19 (US$92b). Recording US$58b (up from US$14b in H1 2020), Canada comes in second, while The Netherlands and Ireland emerge as outbound M&A front-runners with US$53b from an average of US$21b between H1 2015-19 and US$51b from an average of US$4.3b respectively.
At the same time, the US and the UK are emerging as the most attractive destinations for inbound M&A. The US has recorded an increase in the value of inbound transactions by over 250% compared with H1 2020 (to US$200b), and 60% compared with the H1 average (US$125b) of the five years prior to the pandemic. And the UK has seen an increase of 51% (to US$87b) compared to H1 2020 – exceeding the inbound average between H1 2015-2019 (US$80b).
Meanwhile, domestic dealmaking in China is running at record pace with M&A value so far this year totaling US$197b – eight times more than foreign-invested M&A deals and a 20% increase on the average domestic transactions value of the five pre-pandemic years (US$164b).
“North America, in particular the US, and Europe appear poised for above-trend deal activity. A perfect storm of gradual easing of COVID-19 pandemic-related restrictions, rapid vaccine deployment, improved consumer spending, inexpensive capital and strong company balance sheets are fueling activity. In China, the economic strategy to boost domestic demand amid tensions with the US is creating a hotbed for domestic M&A. Deals in the technology, consumer and logistics sectors are dominating on the back of the e-commerce boom kickstarted during the COVID-19 pandemic.”
New media landscape and ESG-related acquisitions drive sector activity
While technology-related transactions are leading the way with an increase in value of more than 161% (to US$783b) compared with the pre-pandemic average, the media and entertainment sector has seen some of the largest deals in 2021 – as streaming giants look to attract and retain customers. The sector has already recorded an impressive US$157b worth of deals (up from US$16b in H1 2020) and more than double the average of the five pre-pandemic years (US$300b).
In addition, M&A into the renewables sector has almost tripled compared with H1 2020 as CEOs look to use transactions to meet ambitious environmental targets. The value of these environmental, social and governance (ESG) -related transactions has jumped from US$35.7b in H1 2020 to US$96.5b in H1 2021.
“The media and entertainment sector is on fire, as businesses increasingly look for ways to combine and complement their strengths and position themselves in this new direct-to-consumer way of delivering content.
“ESG is increasingly becoming an integral part of investment decisions, with many CEOs and investors committing to adapt their current and future deal strategies with sustainability and long-term value creation at the forefront.”
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