M&A activity booms in the second half of 2020 despite impact of COVID-19 on the economy

• _{Global deal volumes went up by 29% (EMEA: +46%) and deal values increased by 156% (EMEA: +138%) in the second half of 2020}
• _{The number of global megadeals (value of over USD 5 billion) more than doubled in the second half of 2020 (from 27 to 57), from USD 266 billion to USD 688 billion}
• _{Technology and telecom sectors saw the highest growth as demand for digital assets accelerates}
• _{The outlook for 2021 indicates conditions are right for a busy year for M&A}

Thursday 04 February 2021 - M&A valuations are soaring, with rich valuations and intense competition for many digital or technology-based assets driving global deals activity, according to PwC’s latest Global M&A Industry Trends analysis. Covering the last six months of 2020, the analysis examines global deals activity and incorporates insights from PwC’s deals industry specialists to identify the key trends driving M&A activity, and anticipated investment hotspots in 2021.

  The pandemic and recent geopolitical developments have already led most companies to the same conclusions, pushing both deal volumes and values higher in the second half of 2020, particularly for digital and technology assets. At global level, the technology and telecom sectors saw the highest growth in deal volumes and values in the second half of 2020 compared to the second half of 2019, with technology deal volumes up by 34% and values up by 118%. Telecom deal volumes were up by 15% and values up by almost 300% due to three telecom megadeals.

COVID-19 accelerates deals activity for digital and technology assets

In spite of the uncertainty created by COVID-19, the second half of 2020 saw a surge in M&A activity. Competition for in-demand assets has driven high valuations, in combination with macroeconomic factors. These include low interest rates, a desire to acquire innovative, digital or technology-enabled businesses, and an abundance of available capital from both corporate buyers (over USD 7.6 trillion in cash and marketable securities) and private equity buyers (USD 1.7 trillion).

“COVID-19 gave companies a rare glimpse into their future, and many did not like what they saw. An acceleration of digitalisation and transformation of their businesses instantly became a top priority, with M&A the fastest way to make that happen - creating a highly competitive landscape for the right deals,” says Philippe Estas, Partner in PwC Belgium’s M&A practice. “With so much capital out there, good businesses are seeking high multiples and achieving them. If this continues - and we believe it will - then the need to focus on value creation is now more relevant than ever for successful M&A.”

By comparison, sectors that have been hardest hit by the pandemic (like industrial manufacturing) or those being shaped by factors such as the transformation to net zero carbon emissions are undergoing structural changes that companies will need to address.

Outlook for 2021: a busy year for M&A

Companies anticipating economic fallout from the global coronavirus pandemic have an accumulated war chest of more than USD 7.6 trillion in cash and marketable securities, and interest rates remain at record lows. Pent-up demand may kick in as the availability of vaccines increases the confidence of CEOs, investors and consumers. For companies facing imminent distress, consolidation may be inevitable. Less desirable assets could see distressed sales at lower valuations, particularly in sectors more adversely impacted by COVID-19 or with business models that are no longer viable given the structural changes taking place.

“For some businesses, dealmaking may be the best and fastest way to fill urgent gaps in the skills, resources and technologies they need to create value down the road,” explains Nancy De Beule, Partner in the M&A practice at PwC Belgium. “Proactive dealmakers will be focusing on securing the digital or technology-based assets necessary to make their business sustainable over the long term. Companies looking to safeguard their economic future by joining forces with a complementary business face the double challenge of rich valuations and intense competition in the search for a good match. In addition, companies will equally look for (di)stressed assets to acquire, where they believe in a turnaround through integration and transformation.”

Headwinds do remain. Ongoing waves of COVID-19 continue to trigger lockdowns, and high unemployment is likely to moderate demand for products and services. Global trade tensions, regulatory pressures and a presidential transition in the USA create uncertainties. A strong IPO market offers owners an alternative to M&A deals as an exit path. And the economic recovery is likely to be uneven across different sectors and regions.

“Following a turbulent year, the overall prognosis for dealmaking in 2021 is marked by opportunity and transformation, and competition for some companies could be fierce,” states Véronique Gillis, Partner in PwC Belgium’s M&A practice. “There is likely to be growing polarisation in asset valuations, an acceleration of deals in digital and technology, and increasing attention to non-traditional sources of value creation such as the impact of environmental, social and governance (ESG) matters, which are increasingly being factored into strategic decision-making and due diligence, as dealmakers focus on protecting returns from the effects of high valuations and fierce demand.”

Other factors expected to have a knock-on effect on deal valuations and M&A activity include an increase in restructurings and the continuation of a hot IPO market, particularly the use of special-purpose acquisition companies (SPACs) to raise capital. In 2020, SPACs raised about USD 70 billion in capital and accounted for more than half of all US IPOs. Private equity firms have been key players in the recent SPAC boom, finding them a useful alternative source of capital. More SPAC activity is expected in 2021, especially involving assets such as electric vehicle charging infrastructure, power storage, and healthcare technology.

About Global M&A Industry Trends

PwC’s Global M&A Industry Trends is a twice-yearly analysis of global deals activity across five industries: consumer markets; technology, media and telecommunications; health industries; energy, utilities and resources; and industrial manufacturing and automotive.

Read PwC’s Global M&A Industry Trends for more insights on 2020 and 2021.

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