Willis Towers Watson's Jana Mercereau on M&A trends for 2021
Despite a surge in dealmaking in the final three months, global mergers and acquisitions (M&A) activity in 2020 fell to its lowest level since the aftermath of the financial crisis over a decade ago.
Data from Willis Towers Watson and the M&A Research Centre at The Business School reveals that companies worldwide completed just 674 deals valued over $100 million in 2020, significantly less than the previous year (774) and the lowest annual volume since 2009 (322).
However, despite the uncertain economic outlook, conditions are primed for a dealmaking surge in 2021, according to Jana Mercereau, Head of Corporate M&A Consulting for Great Britain at Willis Towers Watson. “While the world in 2021 remains a volatile place, pent up demand, ample funding, ultra-low interest rates and confidence returning to boardrooms indicate conditions are ripe for one of the biggest M&A years on record.”
Based on the firm’s research in the field, Mercereau shares the top trends expected for the year ahead:
An increasingly bipolar world
When President-elect Biden takes office, a straightforward shift from the isolationist stance of President Trump’s administration to more internationally expansive market conditions is unlikely. Instead, a geopolitical and macroeconomic environment dominated by tensions between the US and China is expected, with emerging economies largely aligning with China, and Europe caught in between.
Covid-19: A race against time
Governments are running out of cash, spending trillions to keep businesses and jobs afloat in the hope of a jump-start in 2021. Will economies warm up in time or will the fallout from the pandemic be worse this year, triggering a wave of insolvency that overwhelms the global economy, crushing any prospect of recovery in the short term? Some sectors have already reached their ‘tipping point’. Accelerated consolidation, restructuring and divestitures will dominate the travel, retail and real estate sectors.
Covid-19 has also seen a quantum leap in the rate of digital adoption in financial services. In particular, the shift to remote working practices precipitated by the pandemic and calls to pursue a ‘green’ economic recovery are expected to drive M&A activity in the tech sector in 2021 and beyond.
Remapping the geography of M&A
Turbocharged by the pace of technology adoption during the pandemic, the criteria for dealmaking have substantially changed, with location slipping down the priority list for acquirers when targeting companies. Instead of searching in Manhattan or London, a major bank looking to buy a fintech, for example, is increasingly likely to look beyond the borders of Europe and North America to new markets to access the right talent.
The implications for the M&A market in 2021 and longer term will be significant.
SPACS on the rise
The evolution of Special Purpose Acquisition Companies (SPACS) in the US has been dramatic, with 2020 a record-breaking year for the ‘blank cheque’ firms. Despite significant growth (350% increase year on year), they still represent only a small fraction of the overall M&A market (<1%).
Their strong track record, however, is intensifying pressure on regulators in other countries to relax rules and allow SPACS to operate in their markets. With questions over due diligence yet to be resolved, a new wave of SPACS seeking acquisition targets outside of North America in 2021 is more likely to be seen in markets less tightly regulated than Europe. Time will tell how many of these ventures will be successful.
Post-Brexit: What next for UK financial services?
Since the Brexit vote in 2016, M&A activity has continued in the UK and Europe against a backdrop of political and economic uncertainty. While December’s last-minute deal ensures tariff-free trade will continue, how financial services will be affected remains unclear. This uncertainty will inevitably lead to some market volatility and disruption, creating M&A opportunities in 2021 for UK businesses and overseas buyers, as some sectors benefit from severing ties with the European Union, whilst others struggle.
