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Cautious recovery in M&A predicted for 2021

Matthew Toole
Matthew Toole
Director, Deals Intelligence

M&A activity was up-ended by the global pandemic and economic lockdowns in 2020, but only a minority of deal makers expect the market to gain much ground this year. Meanwhile, the U.S. M&A market appears to be in a bubble of its own making, perhaps driven by SPACs, and most other regions remain broadly cautious to downbeat in terms of growth expectations.

  1. On average, M&A professionals surveyed in the Deal Makers Sentiment Survey 2021 predict 6 percent growth in M&A for 2021, after a 5 percent decline in 2020.
  2. The views of deal makers varies from region to region. The Americas is most upbeat – predicting an average of 7.7 percent growth – while the U.S. is considered most attractive, finding favour with 42 percent of M&A professionals.
  3. When considering the main factors that will affect M&A volume in 2021, economic and political concerns have given way to investor and market sentiment.

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A majority of deal makers are not pinning their hopes on a sudden bounce-back in M&A activity in 2021, with 57 percent expecting the market to stay flat or even decline this year. That’s according to Refinitiv’s Deal Makers Sentiment Survey of 465 deal makers across the world.

Discover the full view of what over 460 deal makers expect of 2021

Uncertain outlook for M&A?

M&A professionals are understandably cautious, following a year of COVID-19 and economic lockdowns, precipitating huge volatility across markets and uncertainty within boardrooms.

As a result, their own predictions for activity growth in 2020 were off by nearly 10 percent: an average predicted growth rate of 4.7 percent in last year’s survey was followed by an actual 5 percent plummet in corporate acquisition activity.

Despite this, there remains a sizeable (42 percent) hardcore of global deal makers that do expect a return to confidence and activity in 2021. These bulls push the average expected growth rate for the year to 6 percent.

The Q1 view of the M&A market is in line with the view of these bulls, with worldwide M&A activity totalling US$1.3 trillion for the quarter – the strongest opening period for M&A since records began, the second largest quarter for worldwide M&A on record and the third consecutive quarter to surpass US$1 trillion.

Get the full view of M&A in Q1 2021 from Cornelia Andersson, Head of Banking and Capital Markets at Refinitiv

U.S. bulls and blank cheques

Deal makers in the Americas are the most optimistic, with an average predicted increase in global M&A of 7.7 percent in 2021 (although even here, nearly half expect the market to be no better than flat).

In contrast, Asia-based deal makers are downbeat, with 53 percent expecting no growth and a further 8 percent fearing a decline, taking the average predicted growth rate to 5 percent. That aligns with EMEA, where 64 percent of deal makers anticipate either a flat or falling market.

In terms of countries themselves, the U.S. is most favoured for M&A targets, at 42 percent, followed by China, at a distant second on 25 percent. The unprecedented boom in special purpose acquisition companies (SPACs) listing on U.S. exchanges has hit M&A with $232.1bn in SPAC-led business combinations during Q1 2021, according to Refinitiv data, already outstripping last year’s record of $162bn.

Notably, the UK comes in third-place, and first among European countries. This is despite the fact that a majority of deal makers agree with the statement that UK will become less attractive as a consequence of Brexit.

Investor expectations for M&A

When discussing COVID-19, one-third of deal makers expect its impact on M&A to be positive this year, while 12 percent believe it will continue to have a negative impact.

Either way, the perennial considerations of deal makers – whether the economic and, even more so, political environment – have given way to concerns around investor confidence, risk appetite and preferences.

After a year when unforeseen external factors locked down large swathes of economic activity, it is perhaps unsurprising that all eyes are now on how the market reacts to this completely new status quo.

Even so, the economic picture remains important. But apparently not so much the political situation: the survey was conducted prior the confirmation of Joe Biden, and yet almost nobody mentioned the election as a factor.

It’s worth also noting that despite the focus on the pandemic, from a very low base last year, 9 percent of investors mentioned ESG as a factor in deal-making.

Sector trends reinforced

Technology and healthcare are expected to see the most M&A activity growth in 2021, following a trend we have seen for several years, and that the pandemic has done nothing to slow.

Technology is expecting to fall just short of a double-figure growth rate (9.6 percent), while healthcare follows closely behind at 8.1 percent.

Meanwhile, the financials sector is expected to see much weaker growth than last year, at just 2.9 percent. Elsewhere, real estate may see some consolidation as a result of the pandemic, but remains at the bottom of the sectoral growth chart followed by that other sector facing significant upheaval, consumer retail.

The M&A industry in Q1 2021 shows a mixed picture of these expectations, with Tech and Financials being the two highest performing industries based on M&A activity.

Discover the full view of what over 460 deal makers expect of 2021

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