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New heights: US M&A H1 2021

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US M&A set a new record for value in H1 2021—and nearly surpassed the full-year figure for 2020

A year of historic highs and rapid change

US M&A surged to record levels in the face of pandemic-related challenges and potentially dramatic regulatory shifts

We are just heading into August, but it is already safe to say that 2021 is a historic year for US M&A. Deal value rose to a new high of US$1.27 trillion in H1 2021. This was a 324 percent increase compared to H1 2020—and was virtually equivalent to the total value recorded in all of 2020.

This torrent of deals was the result of a perfect storm of activity on the part of strategic, PE and SPAC dealmakers. The pandemic drove many corporates to offload non-core divisions and acquire digital capabilities. Corporates that thrived during the pandemic used M&A to consolidate gains. PE firms strove to deploy their massive troves of dry powder. And SPACs searched for opportunities to invest the record levels of funds they raised.

The election of Joe Biden as President significantly reduced political uncertainty that may have dampened activity in 2020 and this spurred dealmaking in 2021. However, the administration's policies could also complicate dealmaking.

The Biden Administration is taking vigorous steps to reshape antitrust policies and practices in the US. In July, the President issued an Executive Order to promote competition and lower prices throughout the economy through increased antitrust enforcement. These efforts are likely to intensify during the run-up to the US midterm elections in November 2022. The effects were already visible in the recent decision by Aon and Willis Towers Watson to call off their merger, which they first announced in March 2020. The deal would have created the world's largest insurance broker, but the Department of Justice opposed the deal on the grounds that it would eliminate competition, reduce innovation and lead to higher prices.

CFIUS has shown that it will mostly continue with the more aggressive approach to evaluating deals for national security concerns that was established by the previous administration. And with the appointment of Gary Gensler as Chair of the Securities and Exchange Commission, the administration signaled it will take a more aggressive approach to securities law enforcement.

There are a number of other looming risks as well. The possibility of rising inflation and the end of government support measures related to the pandemic could shock the market. And dealmakers are concerned about potentially frothy valuations.

But perhaps the greatest variable remains the uncertain trajectory of the pandemic. Though the US was on a course of increasing optimism as vaccines were rolled out, recent concerns about the Delta variant of COVID-19 have raised questions—and exacerbated political divisions—about how quickly economies should open up.

Despite these challenges, the outlook for dealmaking remains very positive. US GDP forecasts are upbeat, stock markets are at historic highs, and interests remain low. Moreover, the Biden Administration's economic stimulus efforts and ambitious plans for energy transition and infrastructure development will inject large sums of capital into the economy. We expect US M&A to remain very active in the second half of 2021.

 

US M&A hits record highs

The US enjoyed record levels of M&A activity in H1 2021, as dealmakers made up for lost time caused by pandemic-related disruptions

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Private equity deal activity forges ahead

US private equity has rallied following pandemic lockdowns, thanks to adaptations to remote deal processes and record dry powder

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Sectors

Sector overview: TMT and healthcare continue to dominate

TMT M&A tops the sector charts again

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Oil & gas M&A rebounds after pandemic lows

After a year of volatility, the oil & gas industry has stabilized and M&A activity has resumed

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Technology dealmaking goes from strength to strength

Technology M&A activity is thriving in 2021 as dealmakers continue to turn to the sector in search of assets with high-quality earnings and growth prospects

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Healthcare displays strong deal activity post-pandemic

The value of healthcare M&A in H1 surpassed pre-pandemic levels

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Consumer and retail M&A picks up speed

Deals in the consumer and retail sector show signs of recovery as consumer spending
rallies post-pandemic

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Power & renewables M&A soars on back of green policies

The power and renewables industry is positioned for a sustained period of strong deal
activity as the US focuses on hitting net zero carbon emissions by 2050

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Real estate sees welcome revival in M&A in 2021

M&A value among real estate firms quadrupled year-on-year in H1, after a tough 2020

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Infrastructure M&A forges ahead, even before government boost

After a pause, investment in infrastructure has ballooned, even before the Biden administration's US$1 trillion-plus plan is passed

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In focus

US dealmaking braces for more challenging antitrust environment

After campaigning for the presidency on a platform that included more aggressive antitrust enforcement, Joe Biden has taken early steps to honor those pledges

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CFIUS set to continue careful scrutiny under Biden Administration

President Joe Biden's approach to the national security risks posed by foreignbacked M&A may differ in style from his predecessor, but not in substance

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Reverse break-up fees emerge in response to deal terminations

Even as economies pick up, dealmakers have maintained focus on managing the risk of broken deals

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SEC to take tougher line on enforcement

New Securities and Exchange Commission Chair Gary Gensler has put scrutiny of
SPACs and private funds at the top of his agenda

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Notable decisions from Delaware courts

In the first half of 2021, Delaware courts issued several decisions affecting M&A dealmaking

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Six trends to look out for in the second half of 2021

After a turbulent 18 months which saw M&A crash before an impressive return to form, H2 2021 is set for continued strong deal activity, as well as new challenges

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Technology dealmaking goes from strength to strength

Technology M&A activity is thriving in 2021 as dealmakers continue to turn to the sector in search of assets with high-quality earnings and growth prospects

Insight
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3 min read

US $324.1 billion

The value of 948 deals targeting the US tech sector in H1 2021

Technology deal volume and value surged through the first half of 2021, with tech value climbing 387 percent year-onyear to US$324.1 billion while deal volumes increased 67 percent to 948 transactions.

The sector has been the clear winner throughout the pandemic. Sustained demand for technology products and services enabled strong growth in the sector, which in turn has encouraged higher valuations and M&A. The Dow Jones US Technology Index has climbed 48.05 percent over the last 12 months and is showing gains of more than 20 percent for the year to date. Tech companies like Amazon have posted record sales.

Valuations in the sector have soared as a result—but dealmakers appear to be reserving high prices for those tech companies of the highest quality. 

Antitrust has also come onto the radar for tech deals, with the Biden Administration’s appointment of Lina Khan, a prominent critic of Big Tech, as chair of the Federal Trade Commission. Any potential changes to antitrust will take time to come into effect, however, and are not expected to affect deal appetite in the short to medium term.

387%

Percentage increase in tech deal value compared to H1 2020

 

Digital health

The largest TMT deal in the US in H1 2021 saw software giant Microsoft pay US$19.3 billion for Nuance Communications, a developer of AI-powered speech recognition technology. The deal is the second largest in Microsoft’s history and deepens a two-year partnership between the two businesses to build AI tools that help doctors with administrative tasks.

In another healthcare/technology cross-over transaction, OptumInsight, the healthcare services group owned by United Health, acquired Change Healthcare in a US$13.3 billion deal. Change Healthcare’s technology integrates evidence-based criteria in clinician workflows and the deal is set to complement Optum’s clinical analytics capabilities. The tie-up is expected to help expedite payments to healthcare providers and to provide patients with tools to manage their personal healthcare budgets. 

Software was by far the most active subsector in tech M&A. Software deal value totalled US$248.6 billion in H1 2021, the highest half-year period on Mergermarket record, overtaking the previous record set by the US$158.5 billion achieved in H2 2020.

 

SPACs to stay active

Technology has also been a key sector for SPACs. There were 59 SPAC mergers in the industry in H1 2021, compared to 31 in all of 2020, according to Dealogic.

The third-largest deal in the sector saw Social Capital Hedosophia V, a NASDAQ-listed SPAC, acquire Social Finance, which does business as SoFi, in a US$12.9 billion transaction. The deal saw PIPE investment from BlackRock and Altimeter Capital, among others.

Although SPAC IPO issuance has slowed in the second quarter from the frenzied heights of Q1, SPACs will continue to play an important role in M&A in coming years as they seek attractive targets to deploy the capital they have raised. Tech start-ups—with their potential for exponential "hockey-stick" growth—are well-suited for SPACs, which often seek early-stage companies that offer higher potential reward alongside higher potential risk.

Top technology deals H1 2021

  1. Microsoft acquired Nuance Communications for US$19.3 billion
  2. Change Healthcare was acquired by OptumInsight for US$13.3 billion
  3. Social Finance was sold to Social Capital Hedosophia V for US$12.9 billion

 

 

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

© 2021 White & Case LLP

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