Ripe conditions for increasing mergers and acquisitions
After a year of continuous fluctuations in mergers and acquisitions (M&A), the upward trend in the value of deals recorded since the beginning of the third quarter of 2020 is likely to continue in 2021, as companies prepare to improve their economic performance and redefine their activities and their futurein the post-COVID-19 era.
The big change in consumer behavior is expected to fuel new deals.
This emerges from a recent EY survey examining global trends in
M&A in 2020 and their outlook for 2021. According to the survey,
with a total value of $ 2.9 trillion, the value of M&A worldwide in
2020 fell, compared to $ 3.3 trillion. in 2019.
However, the fifth best performance in terms of aggreemwnts' value was recorded in 2020, in the years following the global financial crisis.
M&A activity varies between geographical areas, with the value in the Asia-Pacific region declining dramatically in the first two months of 2020, while at the end of the year it increased by 19%, reaching $ 805 billion.
On the American continent, the value of M&A decreased by 29%, to $ 1.27 trillion, with the US market falling by 80%, compared to 2019, during the lockdown. In the EMEIA region (Europe, Middle East, India and Africa), the value reduction of the deals was limited to 3%, i.e. $ 815 billion, with the region having recovered most of the lost ground since the beginning of the year.
The most active sectors were: technology, SMEs and telecommunications (TMT), with 5,755 agreements worth $ 973 billion (up by 6% year-on-year), financial services, with 901 agreements, worth $ 352 billion ( 8%), and the energy and utilities sector, with 525 agreements worth $ 142 billion (34% increase).
The sectors most exposed to the COVID-19 pandemic saw a sharper slowdown in M&A during 2020, as a result of lockdowns and a worsening economy. The industrial sector (down by 18%, compared to 2019, to $ 262 billion) and the consumer goods sector (down 16%, to $ 156 billion), were particularly exposed to the effects.
Bold moves in some industries will determine the course of the market from 2021 and on
According to the research, from 2021 and on, the sectors that did not enter into agreements during the pandemic, are expected to be the driving force of the next wave of M&A activity.
For example, in the consumer goods sector, there has been an increase in M&A related to assets that experienced problems during the pandemic, while acquisitions by innovative companies with strong links to their customer base have also been recorded.
Private equity companies have been just as active in 2020 and are likely to remain so in the near future, as businesses and industries relocate during the recovery period expected from 2021 and on. With $ 2.8 trillion in cash, including about $ 1 trillion. Private equity can benefit from value creation in 2021. The growing presence of special purpose acquisition companies (SPACS) could channel additional funds to the market.
In addition, the growing trend for alternative models of agreements, such as joint ventures and alliances, in the logic of building ecosystems, as well as divestitures to facilitate strategic change and reinvestment, are also expected to fuel new agreements.
Technological and geopolitical developments will shape corporate strategies
The increase in M&A activity comes at a time when nearly two-thirds (62%) of executives believe their businesses need to transform their operating model over the next two years, according to research by EY Digital Investment Index. To achieve this, they are starting to turn to emerging technologies, with the Internet of Things, Artificial Intelligence and the cloud among the most likely investments over the next two years (67%, 64% and 61%, respectively). With 52% of executives seeking to integrate digital technologies through M&A saying that this approach exceeded their expectations, and 45% expressing the same view on digital partnerships, 2021 is expected to see an increase in agreements, corporate venture capital and corporate investments.
Geopolitical changes will also affect strategic capital decisions, such as M&A and entry or exit from certain markets. According to EY 2021 Geostrategic Outlook, the analysis of these risks becomes more important in the current environment, with the pandemic acting as a major accelerator for geopolitical change.
In Europe and the United States, variables such as Brexit and the impact of new policies from the new US administration will play a key role in how executives rethink their corporate strategy and fundraising. With the value of M&A in the UK already growing by 40% by 2020, and with 79% of US companies saying they are likely to pursue a strategy of alliances, consortia and M&A if tax rates rise, the foundations to make 2021 a stronger year for M&A, have already been set.
Commenting on the findings of the research, Mr. Tassos Iosifidis, Partner and Head of the Department of Corporate Strategy and Transaction Advisors of EY Greece, states: "2020 was, without a doubt, a year of upheaval. All sectors were shaken by the economic impact of the pandemic, with the effects on M&A activity being evident, leading to a redefinition of investor priorities. Emerging technologies will be among the most likely investment targets in the next two years, amid the rapid transition to e-commerce and remote work, as well as the redesign of supply chains. "Today, the environment of low interest rates, strong financing and a sense of greater confidence, allow us to be optimistic that 2021 will start with a strong dynamic for M&A, hoping to see similar agreements in our country."