Posted on Jan 1, 2021 at 10:00 am
Despite the shock of Covid, global mergers and acquisitions have completed a solid year. More than $ 3.6 trillion in deals were announced in 2020, according to Refinitiv. This is more than the seven years since the last financial crisis, the decline being limited to 5% over one year.
The vacuum observed during the first confinements, however, foreshadowed a dark year. But a dramatic rebound occurred from July, peaking at $ 482 billion over the thirty days of September (+ 114%), followed by October and November (+ 39% and + 26%). “The end of 2019 heralded the end of the M&A growth cycle and, until May, basically, few anticipated such a dramatic recovery, recognizes Gilberto Pozzi, chairman of mergers and acquisitions at Goldman Sachs. A new positive cycle of ‘dealflow’ lasting several years could begin. “
Its competitors are equally enthusiastic. “Given the weakness of economic growth, companies are looking for additional synergies through acquisitions, explains Dirk Albersmeier, global co-head of mergers and acquisitions at JP Morgan. The uncertainties are lifted. There is absolutely no sign of slowing down, it will be a very strong restart in 2021. “
Markets that reward risk taking
The financial vectors are there. “Unlike the 2008 crisis when the financing market closed completely, access to debt remained open throughout the year, and the equity markets quickly recovered, notes Grégoire Chertok, Deputy Global Head of Financial Advisory at Rothschild. When public funding stops, companies will also have to find alternatives, which will involve consolidation or calls to the market. “
“There are phases where the markets support M&A and others less, notes Marc Pandraud, vice chairman Europe of JP Morgan. Today there is a clear positive reception for transformative transactions, with markets rewarding risk taking more than in the recent past. “
M&A in Europe made an exceptional leap, while the volume of transactions fell in the United States: more than $ 990 billion in transactions were sealed, a record since 2008. “Europe has emerged stronger from this crisis, Judge Luigi de Vecchi, Europe chairman of Citi’s investment bank. It is a new European tempo on which companies must capitalize. “
If companies fell back on domestic M&A during the health crisis – with for example the marriage of the Chinese oil giants China Oil and Gas Pipeline and Petrochina (49 billion), brokers Aon and Willis Tower Watson (30 billion) in United Kingdom, and even Veolia’s offer on Suez – this refocusing was less important than in 2019.
“The crisis has led companies to focus on the targets they apprehend best, wants to believe Gilberto Pozzi. But, since then, cross-border deals tend to resume, sign that we are at the beginning of a new phase. “ As evidenced by the takeover of the British IHS Markit at the end of November by the American S&P for 44 billion, and of the American Tiffany by the luxury giant LVMH, which obtained a discount after tense negotiations.
“The election of Joe Biden is particularly positive for cross-border M&A. Given the resumption at the end of Donald Trump’s mandate, the new presidency will only be promising ”, adds Dirk Albersmeier.
New alliances between activists and “private equity”
Especially since new offensive buyers are emerging: listed acquisition vehicles (SPAC). And “Faced with the incursion of these vehicles into the field of unlisted M&A, private equity players are developing funds dedicated to specific targets”, underlines Arnaud Bouyer, co-head of investment banking at Morgan Stanley France.
These funds have a record $ 1.552 billion to invest. Gold “The year was slowed down for a lot of them. The pressure will be stronger in 2021 to seize opportunities, including on the listed markets ”, said Patrick Frowein, co-head of Deutsche Bank’s European Investment Banking (EMEA). In this perspective, they are also starting to form pacts with the activists. “Alliances of this type have already emerged to attack companies from different angles, even if officially they deny any association”, says Dirk Albersmeier.
But some are tempering. “Everything will depend on the effects of the vaccination policy, says Jean-Louis Girodolle, director of Lazard France. But it will probably be necessary to wait until 2022 to register the full effect of the recovery plans, in particular in Europe, and to find a level of activity comparable to that before the crisis. “