There’s no doubt that 2020 was a difficult year—but how did these challenges impact the world of mergers and acquisitions? In this post, we’ll cover Q4 2020 M&A activity, review 2020 M&A activity as a whole, and look ahead to see what the rest of 2021 has in store.
Q4 2020 M&A Recap
Q4 2020 M&A continued its V-shaped recovery, bouncing back from its nadir earlier this year. According to Bloomberg Law, global M&A volume in October 2020 reached $392 billion, the highest since December 2019 and the fifth highest monthly figure since the start of 2018.
While these signs of recovery are encouraging, the M&A sphere continues to feel the ripple effects of the pandemic. PCE Investment Bankers reports that the number of U.S. M&A transactions in December 2020 decreased by 13 percent year over year.
Some of the biggest Q4 2020 M&A deals included:
Morgan Stanley’s $13 billion acquisition of the electronic trading platform E*TRADE in October.
Salesforce’s purchase of the workplace productivity software Slack for $27.7 billion in December.
An $18.5 billion merger between the telehealth giant Teladoc and the digital health management company Livongo, which helps users monitor conditions such as diabetes and high blood pressure.
2020 M&A Year in Review
One year ago, many analysts were already predicting that M&A in 2020 would decline after reaching new heights in 2019 (see e.g., Baker MacKenzie’s October 2019 report). These forecasts were largely due to fears of an “overdue” global recession, as well as economic slowdowns and the impact of wild cards such as Brexit and the U.S. presidential election.
While these analysts were ultimately correct about an M&A slowdown in 2020, the proximal cause was much different: the COVID-19 pandemic (see below). 2020 M&A activity was robust in the first months of the year, then plunged sharply in March (see our Q1 2020 M&A recap) before beginning a steady incline in May. For example, there was a 79 percent jump between H1 and H2 2020 global M&A value, the largest increase on record. This speedy recovery was thanks to government stimulus plans that enhanced organizations’ liquidity while increasing consumer confidence and company restructuring.
2020 M&A activity also varied tremendously depending on industry. Many oil & gas companies, particularly hard-hit by the pandemic, had to make tough choices and sell off assets, such as BP’s $5 billion divestiture of its petrochemical business. Meanwhile, some tech companies benefited from higher valuations to strike it big, such as Just Eat Takeaway’s $7.3 billion purchase of the food delivery company GrubHub.
Some of the biggest 2020 M&A deals (other than the ones mentioned above) include:
The convenience store giant 7-Eleven’s purchase of 3,900 Speedway stores from Marathon for $21 billion in August.
Pharma firm AstraZeneca’s $39 billion acquisition of Alexion, which develops therapies for people with rare health conditions, in December.
Global professional services firm Aon’s $30 billion bid for its competitor Willis Towers Watson, first announced in March but still pending approval from the European Union’s antitrust arm.
The Impact of the Pandemic on 2020 M&A Activity
It comes as no surprise that the pandemic was the single greatest influence on M&A activity this year—both in terms of the deals that were made, and in how those deals were completed.
Many companies made the difficult decision to postpone or cancel their M&A plans, citing the heightened economic uncertainty. In addition, M&A dealmakers had to adapt to working from home, often using Zoom calls and virtual data rooms to conduct remote due diligence securely and efficiently.
Despite these challenges, businesses were largely successful in adjusting to this “new normal.” According to an informal Ernst & Young survey in September 2020, 33 percent of companies said they had concluded an M&A transaction since March. However, the vast majority also agreed that they had observed a significant decline in M&A valuations, with just 22 percent reporting no change.
2021 M&A Outlook and Forecasts
If there’s anything that 2020 has taught us, it’s that we never know for certain what’s coming around the corner. But with that said, what are analysts’ 2021 M&A predictions?
There are many different factors that will impact 2021 M&A activity, creating smudges on analysts' crystal balls. A couple examples include:
The economic and tax policies of the incoming Biden presidential administration in the U.S.
The increasing influence of Asia-Pacific companies in M&A dealmaking, which in the near future is expected to become the largest M&A target region for investment.
However, many analysts see no reason why the H2 2020 M&A recovery won't continue into the new year. According to PricewaterhouseCoopers, the 2021 M&A forecast looks bright: “The M&A recovery that began in the second half of 2020 will accelerate in 2021, as corporate and private investors have access to capital and can pursue deals to build scale and expand scope.” A PwC survey found that 53 percent of U.S. executives plan to increase their M&A investments in 2021. In addition, PwC predicts the rise of 2021 M&A trends such as:
A continued increase in “megadeals” (M&A transactions worth $5 billion or more), especially among healthcare and technology companies that helped drive the H2 2020 M&A recovery.
A continued increase in cross-sector acquisitions. According to PwC, roughly one-third of U.S. corporate M&A deals in 2020 were cross-sector—for example, the athletic clothing company Lululemon’s $500 million acquisition of Mirror, an “at-home fitness company” that sells reflective screens for attending virtual workouts.
- An increase in strategic divestitures as a source of M&A targets—for example, energy companies selling assets such as natural gas pipelines or banks selling off their insurance arms.
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