- Stronger than expected rebound in global M&A value since July 2020 set to continue into 2021
- 2020 ranks fifth for total transactions’ value in the post-global financial crisis period, despite M&A collapse in 1H20
- Huge shift in consumer behavior to drive dealmaking as businesses look to reframe their future
Following a rollercoaster year for mergers and acquisitions (M&A), the increase in year-over-year (YoY) value of deals recorded since the beginning of Q3 is likely to continue into 2021, as companies position themselves for improved economic activity and reframe their future for the post-COVID-19 pandemic era. This is according to EY research looking at global M&A trends in 2020 and the outlook for transactions in 2021 released today.
According to the research, with an overall value of US$2.9t, global M&A in 2020 is tracking below 2019’s value of US$3.3t, but still ranks fifth for value of deals in the post-global financial crisis period. M&A activity has varied across regions, with values in Asia-Pacific slowing dramatically in the first two months of 2020 before finishing the year with an increase of 19% to US$805b. In the Americas, M&A values declined by 29% to US$1,27b, with the US market seeing a fall of 80% at the height of the lockdown compared with 2019. In EMEIA, the decline in deal value is more limited (3%) to US$815b, with the region having regained most of the lost ground from earlier in the year.
The most active sectors were technology, media and entertainment and telecommunications (TMT) with 5,755 deals valued at US$973b (up 6% YoY), financial services with 901 deals valued at US$352b (up 8% YoY), and power and utilities with 525 deals valued at US$142b (up 34% YoY).
Sectors that have been most exposed to the COVID-19 pandemic have seen a more marked slowdown in 2020, as a result of lockdown restrictions and economic slowdown. The industrials sector (down 18% at US$262b compared with 2019) and consumer sector (down 16% at US$156b during the same period) were particularly exposed.
Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions, says:
“An increase in activity in the second half of the year was largely expected, but the rebound in global M&A following the COVID-19 pandemic related stall has been stronger, quicker and more sustained than many could foresee. There has been a boldness in the deals announced post-July with the aim to combine assets to offer a broader and deeper array of products and services to customers being the common thread. As businesses look to build resilience to withstand any future shocks or crises, transactions across all sectors have focused on capturing long sought-after capabilities and building new routes to market, rather than capturing market share.”
Bold sector moves to define the market in 2021 and beyond
Looking ahead to 2021 and beyond, the sectors that showed deal-making restraint during the COVID-19 pandemic will drive the next wave of activity, according to the research.
For example, the consumer sector has seen an increase in M&A involving assets that struggled through the COVID-19 pandemic, led by more financially resilient competitors, while acquisitions driven by innovative companies with a strong link to their customer base have also emerged.
Private equity (PE) firms have also been active in 2020, and they will likely be even more so as businesses and sectors reposition themselves during the anticipated recovery stage in 2021 and beyond. With US$2.8t in dry-powder available, including nearly US$1t dedicated to buyouts, private capital is well-positioned to take advantage of the value creation during anticipated 2021. The growing presence of special purpose acquisition companies (SPACS) in the market could bring other forms of capital to the deal table next year.
In addition, the increasing trend for alternative deal models, such as joint ventures and alliances, as companies take an ecosystem view, as well as divestments to enable strategic business shifts and reinvestment, are also expected to fuel deal making intentions.
Guerzoni says: “Companies in the consumer and industrials sectors will look to combine to take advantage of the anticipated recovery. These businesses will also be looking to adapt to a new environment, in which customer behaviors and preferences have changed dramatically, as a result of the COVID-19 pandemic. There are already signs of such developments through the strong shift to e-commerce amid moves to downsize bricks-and-mortar retail, and the reassessment and de-risking of supply chains for manufacturers.”
Impact of technology and geopolitics to inform corporate strategies
The expected increase in M&A activity comes as nearly two-thirds (62%) of executives believe that their organizations must radically transform their operations over the next two years, according to the EY Digital Investment Index. To achieve that, they are starting to turn to emerging technologies, with the internet of things (IoT), artificial intelligence (AI) and cloud computing among the most likely investments in the next two years (67%, 64% and 61%, respectively). With 52% of executives who pursued digital technologies via M&A saying that the approach exceeded expectations and 45% reporting similarly for digital partnerships, 2021 is set to see an increase in deals, corporate venture capital and partnership investments.
Geopolitical changes will also inform strategic capital decisions, such as M&A and entering or exiting certain markets. According to the EY 2021 Geostrategic Outlook, analysing these risks is becoming more important in the current environment, with the COVID-19 pandemic acting as a great accelerator for geopolitical change overall.
In Europe and the US, variables such as Brexit, and the impact of any new policies as a result of the US election outcome, will play a key role in how executives are rethinking their corporate strategy and capital allocation. With M&A values in the UK already up 40% in 2020, and with 79% of US companies indicating that they are likely to accelerate M&A strategies, alliances and joint ventures if corporate tax rates increase following the presidential election, the foundations are there for 2021 to be a stronger year for M&A.
Guerzoni, says: “Whether it’s technology or geopolitics, disruption in many guises creates fuel for deals and strategic investments. CEOs need to navigate complexity and plan for tomorrow by activating real-world strategies today. This stop-start year has been a surprisingly resilient one for deal-making, considering the uncertainties. But, with conditions ripe to support M&A, including low interest rates, ample funding and a sense of greater certainty going into next year, we can expect 2021 to start off on a strong footing and accelerate from there.”
Notes to Editors
EY exists to build a better working world, helping create long-term value for clients, people and society and build trust in the capital markets. Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate. Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
About EY Strategy and Transactions
EY Strategy and Transactions teams work with clients to navigate complexity by helping them to reimagine their eco-systems, reshape their portfolios and reinvent themselves for a better future. With global connectivity and scale, EY Strategy and Transactions teams help clients drive corporate, capital, transaction and turnaround strategies through to execution, supporting fast-track value creation in all types of market environments. EY Strategy and Transactions teams help support the flow of capital across borders and help bring new products and innovation to market. In doing so, EY Strategy and Transactions teams help clients to build a better working world by fostering long-term value. For more information please visit ey.com/StrategyandTransactions.
About the EY Digital Investment Index
The EY Digital Investment Index gauges how organizations will need to transform to realize their digital strategy over the coming two years. The survey queried 1,001 executives from Europe, North America and Asia from a broad range of industries at companies with more than US$1b in revenue. One-third of companies had annual revenues of over $10b. The survey represents CEOs, CDOs (Chief Digital Officers), CFOs, CSOs and CIOs from industries including advanced manufacturing and mobility (AM&M), consumer education, energy, financial services (FS), health care and life sciences, private equity, technology, media and entertainment, and telecommunications (TMT).