Although financial uncertainty continues, with economic worries over the coronavirus coming hot on the heels of market concern relating to US-China trade tensions and Brexit, deals are still being done, in particular within the technology and healthcare sectors.
So, what’s in store for the rest of 2020 in terms of M&A, given that debt and equity markets are still supportive of deal-making and there’s increased appetite among mid-capitalization corporations to scale up and compete with larger competitors?
Let’s take a look at the four likely trends:
Capital availability and constructive financing markets can facilitate deal-making.
With interest rates remaining low across the world, the ample availability of capital, and high CEO confidence, policy uncertainty will be outweighed.
There is better visibility into earnings and cash flow, with pharmaceutical companies in particular still seeing M&A as a key driver of top-line growth and market share expansion.
Other sectors where significant activity is expected during late 2020 are technology, industrials, and financial services.
Private equity firms are ready to deploy record amounts of capital.
Financial sponsors are searching for sizeable investments across virtually all sectors and geographies, with private equity companies likely to be a bigger driver of global deal volume.
Debt markets remain strong and, importantly, supportive of private equity deals.
Whether middle-market transactions or ‘mega’ deals, there is a thirst to get deals done, and private equity activity retains a steady share of M&A volumes — approximately 21% globally.
Cross-border M&A can rebound.
In 2019, 16 of the top 20 largest M&A transactions involved only U.S. companies.
It, therefore, wasn’t a surprise to note that the 26% decrease in overall cross-border volume came as a result of that.
In 2020, this trend had been reversing, with the market for international M&A deals poised to improve later this year.
Market experts believe that US and Asian companies will look to capitalise on the strength of their currency to become active buyers in Europe.
European companies will, therefore, be motivated to consider combinations to compete with their global counterparts.
Additional outbound activity from Japan is likely though expectations will be tempered as far as outbound investment from China is concerned.
Companies may find appeal in mergers of equals and all-stock transactions.
Mid-sized companies could look for value through greater scale by merging with similar-sized corporations.
Certain advantages could be achieved by stock-for-stock mergers, which is when shares of one company are traded for another.
In turn, that would avoid the kind of balance-sheet expansion that sometimes exists in cash-heavy mergers.
Macroeconomic uncertainties do exist, but M&A activity, driven by a strong U.S. economy, an eventual reduction in geopolitical uncertainty and low interest rates, will ensure that financial opportunities remain available.