Against all odds: US M&A 2020
US deal activity held up remarkably well in the face of unprecedented uncertainty in 2020, with total deal value in H2 surpassing the previous year
The past year has been an exceptionally challenging one for societies and economies globally, and many companies were hit hard by COVID-19 lockdowns and travel restrictions.
The huge uncertainty that gripped capital markets early in the pandemic put equities into sharp decline and dealmaking largely on hold as strategic buyers and private equity (PE) firms turned inwards to support existing portfolios. The challenges posed by remote due diligence and uncertainty around valuations provided further reasons for market participants to hold back from transacting.
After this initial period of disruption, however, deal activity rebounded strongly, with total value in H2 significantly higher than the same period in 2019. Buyers assessed COVID-19 business risks, PE owners provided portfolio companies with the necessary support where required and proceeded to look outwards for opportunities to improve companies through acquisitions.
Low interest rates and extensive government support for the economy have helped to revive deal activity. Resilient companies in industries that fared relatively well through lockdowns—such as TMT, food and beverage, and healthcare—have been able to take advantage of high levels of cash and strong stock prices to execute acquisitions.
The rise in deal activity in the second half obscures a bifurcated market, however. Even as activity at the top end of the market exceeded pre-pandemic levels, M&A in the middle-market remained muted, likely due to greater uncertainty around valuations.
Our overall outlook for the next 12 months is cautiously optimistic. A series of successful clinical trials have led to vaccine rollouts, providing a major boost to close the year. And stock markets have looked beyond the pandemic to crest new highs.
A more stable outlook could spark a resurgence of middle-market deals, as well as continue to encourage deal activity among larger firms.
After a difficult period, there is reason for optimism that conditions in 2021 will support the momentum in M&A markets that started to build in the final quarter of 2020.
M&A value in the healthcare sector (incorporating pharma, medical and biotech) stayed relatively robust in 2020, even without the kind of blockbuster deals the sector had become accustomed to seeing in recent years
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