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New heights: US M&A H1 2021

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US M&A set a new record for value in H1 2021—and nearly surpassed the full-year figure for 2020

A year of historic highs and rapid change

US M&A surged to record levels in the face of pandemic-related challenges and potentially dramatic regulatory shifts

We are just heading into August, but it is already safe to say that 2021 is a historic year for US M&A. Deal value rose to a new high of US$1.27 trillion in H1 2021. This was a 324 percent increase compared to H1 2020—and was virtually equivalent to the total value recorded in all of 2020.

This torrent of deals was the result of a perfect storm of activity on the part of strategic, PE and SPAC dealmakers. The pandemic drove many corporates to offload non-core divisions and acquire digital capabilities. Corporates that thrived during the pandemic used M&A to consolidate gains. PE firms strove to deploy their massive troves of dry powder. And SPACs searched for opportunities to invest the record levels of funds they raised.

The election of Joe Biden as President significantly reduced political uncertainty that may have dampened activity in 2020 and this spurred dealmaking in 2021. However, the administration's policies could also complicate dealmaking.

The Biden Administration is taking vigorous steps to reshape antitrust policies and practices in the US. In July, the President issued an Executive Order to promote competition and lower prices throughout the economy through increased antitrust enforcement. These efforts are likely to intensify during the run-up to the US midterm elections in November 2022. The effects were already visible in the recent decision by Aon and Willis Towers Watson to call off their merger, which they first announced in March 2020. The deal would have created the world's largest insurance broker, but the Department of Justice opposed the deal on the grounds that it would eliminate competition, reduce innovation and lead to higher prices.

CFIUS has shown that it will mostly continue with the more aggressive approach to evaluating deals for national security concerns that was established by the previous administration. And with the appointment of Gary Gensler as Chair of the Securities and Exchange Commission, the administration signaled it will take a more aggressive approach to securities law enforcement.

There are a number of other looming risks as well. The possibility of rising inflation and the end of government support measures related to the pandemic could shock the market. And dealmakers are concerned about potentially frothy valuations.

But perhaps the greatest variable remains the uncertain trajectory of the pandemic. Though the US was on a course of increasing optimism as vaccines were rolled out, recent concerns about the Delta variant of COVID-19 have raised questions—and exacerbated political divisions—about how quickly economies should open up.

Despite these challenges, the outlook for dealmaking remains very positive. US GDP forecasts are upbeat, stock markets are at historic highs, and interests remain low. Moreover, the Biden Administration's economic stimulus efforts and ambitious plans for energy transition and infrastructure development will inject large sums of capital into the economy. We expect US M&A to remain very active in the second half of 2021.

 

US M&A hits record highs

The US enjoyed record levels of M&A activity in H1 2021, as dealmakers made up for lost time caused by pandemic-related disruptions

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Private equity deal activity forges ahead

US private equity has rallied following pandemic lockdowns, thanks to adaptations to remote deal processes and record dry powder

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Sectors

Sector overview: TMT and healthcare continue to dominate

TMT M&A tops the sector charts again

electronic engineering

Oil & gas M&A rebounds after pandemic lows

After a year of volatility, the oil & gas industry has stabilized and M&A activity has resumed

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Technology dealmaking goes from strength to strength

Technology M&A activity is thriving in 2021 as dealmakers continue to turn to the sector in search of assets with high-quality earnings and growth prospects

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Healthcare displays strong deal activity post-pandemic

The value of healthcare M&A in H1 surpassed pre-pandemic levels

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Consumer and retail M&A picks up speed

Deals in the consumer and retail sector show signs of recovery as consumer spending
rallies post-pandemic

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Power & renewables M&A soars on back of green policies

The power and renewables industry is positioned for a sustained period of strong deal
activity as the US focuses on hitting net zero carbon emissions by 2050

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Real estate sees welcome revival in M&A in 2021

M&A value among real estate firms quadrupled year-on-year in H1, after a tough 2020

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Infrastructure M&A forges ahead, even before government boost

After a pause, investment in infrastructure has ballooned, even before the Biden administration's US$1 trillion-plus plan is passed

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In focus

US dealmaking braces for more challenging antitrust environment

After campaigning for the presidency on a platform that included more aggressive antitrust enforcement, Joe Biden has taken early steps to honor those pledges

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CFIUS set to continue careful scrutiny under Biden Administration

President Joe Biden's approach to the national security risks posed by foreignbacked M&A may differ in style from his predecessor, but not in substance

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Reverse break-up fees emerge in response to deal terminations

Even as economies pick up, dealmakers have maintained focus on managing the risk of broken deals

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SEC to take tougher line on enforcement

New Securities and Exchange Commission Chair Gary Gensler has put scrutiny of
SPACs and private funds at the top of his agenda

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Notable decisions from Delaware courts

In the first half of 2021, Delaware courts issued several decisions affecting M&A dealmaking

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Six trends to look out for in the second half of 2021

After a turbulent 18 months which saw M&A crash before an impressive return to form, H2 2021 is set for continued strong deal activity, as well as new challenges

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Oil & gas M&A rebounds after pandemic lows

After a year of volatility, the oil & gas industry has stabilized and M&A activity has resumed

Insight
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3 min read

US$45 billion

The value of 71 deals targeting the US oil & gas sector in H1 2021

The oil & gas sector was hit especially hard in the first half of 2020, when oil & gas prices plummeted due to two main factors, a price war between major producers Saudi Arabia and Russia and falling demand because of COVID-19 lockdowns. The value of US oil & gas M&A approached all-time lows in H1 2020, but it spiked in Q3 2020.

Year-on-year, oil & gas M&A value increased more than eightfold to US$45 billion in H1 2021. Volume over this period rose by 73 percent to 71 deals. The positive year-on-year comparisons consolidated the gains made in the second half of 2020, when 86 oil & gas deals worth US$77 billion were agreed. A recovering oil price, which has almost doubled over the last 12 months, from US$37 per barrel in June last year to around US$70, has supported the M&A rebound and given investors the confidence to pursue deal opportunities.

73%

Percentage increase in volume compared to H1 2020

 

Building scale

The largest oil & gas deal announced so far this year was shale gas player Cabot Oil & Gas’s proposed takeover of Cimarex Energy for US$9 billion. The deal will create a US$17 billion energy company with the scale to ride out future commodity cycles with resilience and deliver steady cash flows and dividends for shareholders. The acquisition will provide geographic diversity, combining Cabot’s natural gas assets in Pennsylvania with Cimarex’s operations in the Permian Basin and the Mid-Continent Oil Field in the American Southwest.

The transaction is part of a trend seeing independent US producers consolidate to gain scale as the industry recovers from the disruptions of last year, taking advantage of a strong current oil price while building portfolios that will be resilient in the face of potential future volatility in commodity prices.

The third-largest transaction of the sector in H1 was another example of this trend. The US$4.4 billion deal saw KKR-backed Independence Energy merge with Contango Oil & Gas. The merger will combine assets in basins ranging from Colorado to Texas and the combined entity will remain acquisitive, seeking larger targets, according to Contango Chairman John Goff.

The same theme is present in oil and gas infrastructure operators. In the second-largest deal in the sector, Energy Transfer, which owns and operates a portfolio of energy transport assets in the US, bought Enable Midstream Partners, an operator of natural gas and oil pipeline infrastructure assets, for US$6.9 billion. The deal will give Energy Transfer greater connectivity in the Mid-Continent Basin and the Gulf of Mexico Coast, according to the deal announcement.

 

A greener future

M&A is expected to remain a theme across the US energy sector as the Biden Administration focuses on targets to achieve net zero carbon emissions by 2050.

Oil & gas companies will use M&A as a lever to either pivot their portfolios away from over-reliance on hydrocarbons or build scale as demand for fossil fuels tapers off in line with the transition to renewables.

Top oil & gas deals H1 2021

  1. Cimarex Energy was acquired by Cabot Oil & Gas for US$9 billion
  2. Energy Transfer bought Enable Midstream Partners for US$6.9 billion
  3. Contango Oil & Gas Company acquired Independence Energy, LLC, for US$4.4 billion

 

 

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© 2021 White & Case LLP

 

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