Strong US M&A Activity in the Second Half of 2020 Projected to Carry into 2021

The US M&A market did remarkably well in the face of unprecedented uncertainty in 2020, with total deal value in H2 hitting US$965.3 billion—surpassing H2 2019. This is according to a new report, Against all odds: US M&A 2020, by global law firm White & Case LLP and M&A data provider Mergermarket. 

"Despite the extremely challenging events of 2020, with low interest rates and extensive government support for the economy, dealmaking was very active, especially in the second half of the year—after the pandemic initially halted a number of deals," said John Reiss, Global Head of M&A at White & Case. "Challenges remain, but we entered 2021 with the promise that vaccine rollouts will reduce the impact of the pandemic. The momentum in the second half of 2020 strengthened our conviction that M&A will be an important factor in the global recovery."

According to the report, M&A in 2020 was shaped by these important factors:  

• SPACs: Approximately 248 SPAC vehicles were listed in the US in 2020, raising more than US$80 billion, compared to 59 listings raising US$13.5 billion the previous year, according to Dealogic. This is a rich pipeline of future M&A deals. 
• ESG: Through the course of 2020, environmental, social and governance (“ESG”) factors have become increasingly pertinent for M&A investors. The coronavirus pandemic, the Black Lives Matter movement and phenomena such as the California wildfires have highlighted how businesses affect, and are affected by, public health, civil society and the environment. Thus, ESG is higher up the corporate and PE agenda than ever, and is becoming more and more influential when it comes to M&A.
• Management retention and employee health remain top priority: Employee health, safety and diversity policies were thrust to center stage in 2020 due to the pandemic. With respect to key management and employee retention, companies and deal investors have had to develop creative incentive schemes to keep talent onboard through the COVID-19 dislocation period.

Sector highlights for 2020 included: 

• US private equity (PE) delivered 2,027 PE-related deals (including both exits and buyouts) worth US$459.8 billion in 2020. Although this represents an eight percent year-on-year steady, the overall declines for M&A were much bigger.
• The US TMT sector delivered US$406.3 billion worth of deals in 2020, surpassing the US$294.5 billion figure for 2019—making it one of the few sectors to see an annual increase in total value. This was mostly due to technology M&A, which reached US$338.6 billion, a 53 percent rise compared to 2019.
• The US healthcare sector (pharma, medical and biotech) held up well with 716 deals; value fell by 28 percent in 2020 compared to 2019 (2019 was a colossal healthcare transaction year) at US$194.9 billion. 
• The US oil & gas sector delivered only 118 transactions in 2020, 43 percent below the total the previous year. Deal value fell 47 percent to US$82.4 billion.

As we look ahead, the report identified five themes that are likely to drive M&A in 2021: 

• The US economy is forecasted to return to growth in 2021, potentially giving dealmakers a solid backdrop against which to transact. 
• The pandemic has highlighted the importance of technology, and more companies are likely to turn to M&A to strengthen their digital infrastructure and tech capability. 
• Private Equity firms are sitting on more than US$1.7 trillion of dry powder and SPACs have raised more than US$60 billion in 2020, according to Dealogic. The clock is ticking on this capital. 
• Middle-market firms have proved difficult to value in 2020 amid the high levels of uncertainty and market volatility. But vaccinations and the US election results should help clear up uncertainty, encouraging the return of mid-market deals. 
• Biden's tax plan calls for an increase in capital gains tax for high earners from 23.8 percent to 39.6 percent. Those already contemplating deals could be incentivized to strike before changes come into effect.

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