16 March 2021 – M&A valuations are soaring, with rich valuations and intense competition for many digital or technology-based assets driving global deals activity, according to PwC’s latest Global M&A Industry Trends analysis.
Covering the last six months of 2020, the analysis examines global deals activity and incorporates insights from PwC’s deals industry specialists to identify the key trends driving M&A activity, and anticipated investment hotspots in 2021.
In spite of the uncertainty created by COVID-19, the second half of 2020 saw a surge in M&A activity.
“COVID-19 gave companies a rare glimpse into their future, and many did not like what they saw. An acceleration of digitalisation and transformation of their businesses instantly became a top priority, with M&A the fastest way to make that happen — creating a highly competitive landscape for the right deals,” says Brian Levy, PwC’s Global Deals Industries Leader, Partner, PwC US.
Key insights from the second half of 2020 deals activity include:
COVID-19 accelerates deals activity for digital and technology assets in a highly competitive market
In demand assets have commanded high valuations and fierce competition, driven by
macroeconomic factors. These include low interest rates, a desire to acquire innovative, digital or technology-enabled businesses and an abundance of available capital from both corporate (over $7.6 trillion in cash and marketable securities) and private equity buyers ($1.7 trillion).
By comparison, assets in sectors that have been hardest hit by the pandemic like industrial manufacturing or those being shaped by factors such as the transformation to net zero carbon emissions are creating structural changes that companies will need to address. Where the future viability of their business models are challenged, companies may look to distressed M&A opportunities or restructuring to preserve value.
Triono Soedirdjo, PwC Indonesia Advisory Partner, added, “Given the imminence of restructuring (after relief measures end), the acceleration of vaccination programmes and the return of emerging economies to their pre-pandemic growth trajectories, M&A activities have nowhere to go but up. Competition for good assets will intensify and the overpayment risk will be higher than ever. Deal-makers will need a more robust acquisition process and strong value-creation initiatives to ensure successful M&A.”
Deal-makers widen assessment of value creation to non-traditional sources
Non-traditional sources of value creation such as the impact of environmental, social and governance factors (ESG) are increasingly being considered by deal-makers and factored into strategic decision-making and due diligence, as they focus on protecting and maximising returns from high valuations and fierce demand.
“With so much capital out there, good businesses are commanding high multiples and achieving them. If this continues - and I believe it will - then the need to double down on value creation is now more relevant than ever for successful M&A,” says Malcolm Lloyd, Global Deals Leader, Partner, PwC Spain.
The impact of a hot IPO market on M&A
The last six months saw the prevalence of the use of special-purpose acquisition companies (SPACs) to pool investor capital for acquisition opportunities in a highly active IPO market. In 2020, SPACs raised about $70 billion in capital and accounted for more than half of all US IPOs. Private equity firms have been key players in the recent SPAC boom, finding them a useful alternative source of capital. More SPAC activity is expected in 2021, especially involving assets such as electric vehicle charging infrastructure, power storage, and healthcare technology.
Notes to editors
1. Read PwC’s Global M&A Industry Trends for more insights on 2020 and 2021.
2. PwC’s Global M&A Industry Trends is a biannual analysis of global deals activity across five industries — consumer markets (CM), technology, media and telecommunications (TMT), health industries (HI), energy, utilities and resources (EU&R), and industrial manufacturing and automotive (IM&A).
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