Our thinking

Against all odds: US M&A 2020

What's inside

US deal activity held up remarkably well in the face of unprecedented uncertainty in 2020, with total deal value in H2 surpassing the previous year

Foreword

Global Head of M&A

After the initial shock of the pandemic, M&A activity rebounded significantly in H2. Nevertheless, challenges remain—despite low interest rates and strong stock prices

The past year has been an exceptionally challenging one for societies and economies globally, and many companies were hit hard by COVID-19 lockdowns and travel restrictions.

The huge uncertainty that gripped capital markets early in the pandemic put equities into sharp decline and dealmaking largely on hold as strategic buyers and private equity (PE) firms turned inwards to support existing portfolios. The challenges posed by remote due diligence and uncertainty around valuations provided further reasons for market participants to hold back from transacting.

After this initial period of disruption, however, deal activity rebounded strongly, with total value in H2 significantly higher than the same period in 2019. Buyers assessed COVID-19 business risks, PE owners provided portfolio companies with the necessary support where required and proceeded to look outwards for opportunities to improve companies through acquisitions.

Low interest rates and extensive government support for the economy have helped to revive deal activity. Resilient companies in industries that fared relatively well through lockdowns—such as TMT, food and beverage, and healthcare—have been able to take advantage of high levels of cash and strong stock prices to execute acquisitions.

The rise in deal activity in the second half obscures a bifurcated market, however. Even as activity at the top end of the market exceeded pre-pandemic levels, M&A in the middle-market remained muted, likely due to greater uncertainty around valuations.

Our overall outlook for the next 12 months is cautiously optimistic. A series of successful clinical trials have led to vaccine rollouts, providing a major boost to close the year. And stock markets have looked beyond the pandemic to crest new highs.

A more stable outlook could spark a resurgence of middle-market deals, as well as continue to encourage deal activity among larger firms.

After a difficult period, there is reason for optimism that conditions in 2021 will support the momentum in M&A markets that started to build in the final quarter of 2020.

US dealmaking robust despite COVID-19

US M&A activity fell precipitously in the first half of the year but picked up again in H2, especially at the upper end of the market

US dealmaking robust despite COVID-19

Private equity stands its ground in 2020

US buyout activity at the top end of the market dropped significantly but exit value held up in 2020

Private equity stands its ground in 2020

Sector watch

Sector overview: TMT and healthcare top the charts

The TMT sector was buoyed by global spikes in demand as the world shifted toward virtual interactions in every walk of life

Sector overview: TMT and healthcare top the charts

Oil & gas dealmaking hit hard by pandemic

Deal activity in the oil & gas sector was severely impacted by the COVID-19 pandemic, as commodities prices plummeted

Oil & gas dealmaking hit hard by pandemic

Technology megadeals shine, while mid-market activity slumps

Businesses and consumers have relied on technology more than ever through the course of the pandemic, supporting strong dealmaking at the top end of the market

Technology megadeals shine, while mid-market activity slumps

Healthcare M&A activity heats up in H2

M&A value in the healthcare sector (incorporating pharma, medical and biotech) stayed relatively robust in 2020, even without the kind of blockbuster deals the sector had become accustomed to seeing in recent years

Healthcare M&A activity heats up in H2

Consumer M&A strong despite COVID

Total M&A value in the consumer sector has dropped only 1 percent year-on-year thanks to several significant transactions in the food industry.

Consumer M&A strong despite COVID

Real estate M&A tumbles, despite bright spots in healthcare and logistics

Real estate portfolios exposed to hospitality and retail assets have struggled through COVID-19 lockdown periods, but healthcare and logistics investments have performed strongly

Real estate M&A tumbles, despite bright spots in healthcare and logistics

Decisions from Delaware

Notable decisions from Delaware courts

2020 saw several decisions from the Delaware courts that will affect M&A dealmaking. We focus on four that may prove especially consequential

Notable decisions from Delaware courts

Conclusion

Five trends to look out for in 2021

The past year has been tumultuous for M&A activity, but with a COVID-19 vaccine rollout underway and pent-up demand among PE firms, the fundamentals are in place for a busy year in 2021

Five trends to look out for in 2021
Top