Dive Brief:
- Companies worldwide completed 674 deals, valued at more than $100 million, last year, a 12.9% decline compared with 2019, and the lowest transaction total since 2009, according to research by Willis Towers Watson.
- Worldwide deal volume surged to 246 during the fourth quarter, a 17.1% increase compared with the final three months of 2019. Volume was driven by 136 transactions in North America, a record for Q4.
- By one measure, acquiring companies did not derive value from their transactions last year; their share prices lagged the MSCI World Index on average by 1.9%, Willis Towers Watson found.
Dive Insight:
The strong fourth quarter probably presages robust deal-making in 2021, Duncan Smithson, WTW senior M&A director, said. Pent-up demand, ample available capital, low interest rates and a return in confidence among business leaders will likely push up transaction totals in 2021, he said.
"We think the underlying fundamentals are really going to drive a surge in deal activity this year," Smithson said, noting the outlook partly depends on five main trends:
- Tensions between the U.S. and China over geopolitical and economic interests. While Europe is caught in between the rivalry, most emerging economies will likely align with China.
- Trillions of dollars in fiscal support may not be enough to avert widespread insolvency and a downturn in global growth. The travel, retail and real estate sectors already face accelerating consolidation, restructuring and divestiture. Deal-making in the tech sector will probably rise, fueled by the shift to remote work and growing support for a "green" economic recovery.
- The pandemic-induced shift to digital technology has made the location of target companies less important and expanded the pool of potential acquisitions. For example, a bank seeking to buy a fintech company will probably look for talent in new markets beyond Europe and North America.
- Use of Special Purpose Acquisition Companies (SPACs) will probably spread beyond the U.S., especially to markets less tightly regulated than Europe. The rapid growth of SPACs in the U.S. has increased pressure on regulators elsewhere to approve such financing.
- The Brexit deal negotiated last month, although ensuring continued tariff-free trade, did not clarify the outlook for the U.K.’s financial sector. Such uncertainty, and the emergence of post-Brexit winners and losers, will probably trigger market volatility and create M&A opportunities.
