M&A business defies pandemic
Munich / Zurich (ots) –
- Global deal volume will increase by more than 30 percent in each of the third and fourth quarters of 2020
- Despite the corona-related slump earlier in the year, there were more than 28,500 acquisitions totaling $ 2.8 trillion in 2020
- Share of scope deals increases to 56 percent
- Despite the crisis, company buyers are paying higher multiples than in 2019
The global M&A business recovered comparatively quickly in 2020 from the deep slump at the beginning of the year. After there were only a few takeovers in the first half of the year, the deal volume increased by more than 30 percent in each of the third and fourth quarters. For the full year it was around 2.8 trillion US dollars, 15 percent below the level of 2019 – the number of deals was a good 11 percent less at 28,500 – but the M&A business has proven to be much more stable, than was expected at the beginning of the corona pandemic. In its “Global M&A Report 2021”, the international management consultancy Bain & Company analyzes the worldwide merger and takeover activity and deals with numerous industries.
Company acquisitions are indispensable
“The robust M&A business in the midst of the Corona crisis underlines the strategic importance that mergers and acquisitions have for companies,” emphasizes Bain partner and M&A expert Dr. Tobias Umbeck. The global survey of around 300 M&A managers as part of the study showed that 45 percent of those surveyed see company acquisitions as a driver of future sales growth, compared with 30 percent three years ago. “Mergers and acquisitions are increasingly indispensable,” says Umbeck with conviction. “In complex economic ecosystems, companies have to enter into more and more partnerships or purchase skills that are critical for success. This is also one of the reasons why the proportion of scope deals is growing.”
In fact, in 2020, 56 percent of all transactions over a billion US dollars were aimed at expanding the business, acquiring new skills or venturing into new areas of business (Figure). In Germany, this included the collaboration between BMW and Volkswagen and the Swedish battery specialist Northvolt. In return, the proportion of cost-driven scale deals fell to 44 percent. Such transactions remain particularly important for industries in which the corona crisis has accelerated disruptive change. These include retail, media and telecommunications, and banks.
Europe’s banking industry facing consolidation
Bain partner and banking expert Mike Kühnel sees considerable potential for takeovers in Europe, especially in the financial sector: “A wave of consolidation among banks is foreseeable, because in an international comparison the degree of concentration in European countries, especially Germany, is low.” There is also movement among providers of financial market infrastructures, as traditional value chains in the financial sector are breaking up. This not only creates space for expansion, but also for new business models, for example in the data and information sector as well as in the field of cryptocurrencies and digital assets.
However, depending on the takeover target, companies have to be prepared for high purchase prices. In contrast to the global financial crisis of 2008/2009, ratings did not fall in 2020. Rather, the EBITDA multiple on the company value rose to an average of 14 worldwide – after 13 in the previous year. However, the values differ significantly depending on the industry. For example, in the retail and energy sectors, valuations have recently declined, while they have risen for technology companies and healthcare providers. “This dichotomy should continue,” said Kühnel. “Anyone who wants to enter promising markets or expand their position there has to pay a premium. The sellers know their value.”
Regional deals in focus
The companies will not lose their desire to buy. According to the Bain survey, one in two expects the number of M&A deals in their respective industry to increase in 2021. The trend that has been evident for a long time that regional deals are preferred to intercontinental transactions is likely to continue. 60 percent see the localization of the supply chain as an important topic for future acquisitions.
“The M&A business will gain momentum in 2021,” explains Bain partner Umbeck. “If companies want to survive in the more competitive environment, they have to develop their M&A strategy further, taking all options into account.” These ranged from partnerships and minority holdings to our own corporate venture fund. In addition, the digitization of the M&A process itself is becoming increasingly important. “The Corona crisis is also accelerating existing trends such as digitization and regionalization in the M&A business,” said Umbeck. “At the same time, takeovers and mergers across all industries are becoming an integral part of the corporate strategy.”
You can find a graphic on the subject here: http://bit.ly/3vIipp2
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