What M&A Trends

Should You Watch In 2021?

Will the M&A rebound gain steam in 2021?

  • 2021 will be a great year for M&A
  • There are five trends that are contributing to the confidence in the market
  • Four industries that will be good investments in 2021

When COVID-19 shut down businesses in March of 2020, M&A activity took a sharp nosedive. Not surprisingly, dealmakers held their cards close to their chests, waiting to see how the pandemic would affect key industries. And while some sectors did suffer significant losses, others saw growth during that same period.

Now, a full year later, the M&A boom that has been trending for the past several years seems to be no worse for the wear. Despite the effects of the pandemic and an 80% lower deal volume in April 2020 than in December 2019, by the end of the year, the market had seen a soaring recovery.

According to Bloomberg, overall deal volumes were only down by about 6% by the end of the year as compared with 2019. That’s impressive given the economic effects of the pandemic.

 So where does that leave us for 2021?

2021 Will Be a Great Year for M&A

The good news is that 2021 is off to a stellar start in terms of M&A activity. A Pricewaterhouse Coopers survey of U.S. executives found that 53% plan to increase M&A investment this year.

Let’s take a look at five trends that are contributing to confidence and deal activity in the market:

1 – The Abundance of Capital

The U.S. has experienced an unprecedented abundance of investment capital over the past several years. Driven by structural economic changes, an increase in private equity investment, and increased cash flow for large corporations, this sustained capital growth has enabled companies to expand M&A. 2020 also saw an increase in bidding activity by special purpose acquisition companies (SPACs). SPACs raised $82 billion in investment capital in the U.S. last year, a whopping five times more than their total volume in 2019, and activity is still strong in the first months of 2021.

The abundance of capital

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2 – Inexpensive Debt

Alongside this surge in available capital, we’re also seeing historically low-interest rates. Well below what might be expected in the wake of the Great Recession, this continued access to “cheap debt” has fueled a flurry of M&A activity that doesn’t show signs of slowing. Riding on these low-interest rates, investors can leverage debt to pay for acquisitions with little risk of impacting their credit rating or the health of the business they are buying.

3 – Multiple Expansion

Multiples have been escalating for almost a decade now and are currently trending at 10-15x earnings in the most profitable sectors. Many economists expected the bubble to burst in 2020 as the pandemic stifled activity during Q2. But it didn’t happen. Q4 of 2020 saw both higher total deal volume and greater deal value as compared with the same period in 2019. While multiples do vary within industries, it’s encouraging to see that they are still trending high despite the pandemic.

4 – Post-Pandemic Rebound

In 2020, M&A activity concentrated in sectors that were not negatively impacted by the pandemic. As we head into 2021, however, even companies that saw lower transaction volumes last year are now emerging with better valuation. This year will likely see more strategic acquisitions in commercial sectors that struggled during 2020. These companies now have a clearer path to recovery and normal operating conditions, making it easier to agree on valuation and deal pricing.

Multiple Expansion

5 – Changes to Capital Gains Rates

Political uncertainty always creates economic uncertainty. With the 2020 election behind us, some of that instability has been resolved. However, there is still conjecture about what will happen with the capital gains rate. Tax policy will have significant impacts on M&A activity in 2021, with many investors seeking to close deals before rates go up. If the new administration makes significant changes, we could see impacts to deal volume, pricing, and valuations in the future. Those changes likely won’t take place until next year at the earliest, however, and that leaves 2021 as a window of opportunity for M&A.

What Industries Will
Be Good Investments in 2021?

Last year, industries that were least affected by COVID-19 saw the most M&A activity. In 2021, even those sectors that struggled during the pandemic should see a surge in deal volume. Some economists believe these sectors will see even more activity than those that remained strong throughout 2020.

If you are planning to sell, it will help to know which areas are booming right now so you can position your company as a strategic investment. Here are four areas to watch this year:

Digital Transformation/Technology

Digital and technology innovations are driving a significant portion of the economy. In 2021, we have already seen tech company EBIDTA multiples rise over 2019 and 2020. Currently, global multiples average 19.1x as compared with 18.7x last year. In the U.S. those multiples have soared even higher, averaging 29.3x for 2021. Tech acquisitions will be an important part of strategic positioning to accelerate growth and innovation, making them prime M&A targets in 2021. Any stats available here on multiples for tech companies? Not a big deal but if easy to add would be cool.

    • Environmental, Social, and Governance

    Green initiatives and social issues matter to consumers and shareholders, and that means companies must prioritize them as well. That’s even more important in the wake of COVID-19. Investors will want to consider an acquisition target’s brand promise, values, and transparency as part of its valuation when making a deal.


      Healthcare concluded 2020 with a 21% increase in transactions over Q4 of 2019. In 2021, that momentum will continue as investors focus on strategic initiatives including technology and digital health.

        Financial Services

        This year, we can expect to see increased activity in fintech, cross-sector acquisitions, and strategic transformation. The goal of many transactions in this space will be to minimize disruption and create strong partnerships that will support evolving business models.

          What Does All This Mean for Sellers?

          If you plan to sell your business in the near future, the time is now. Because we don’t know how the new political administration’s policies will affect M&A activity in the future, it’s wise to make your move while the market is favorable and multiples are elevated.

          For two decades, CFO Alliance has helped innovative founders across the start, scale, exit spectrum achieve premium multiples. If you are contemplating a sale and have questions about how to manage the deal process, how to position your company for the highest multiple, or how to get the deal done, we can help.

          Contact us today to start the conversation!

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