Even with the pandemic initially bringing so much uncertainty and seeming to halt certain sectors of the economy, such as hospitality, transportation and commercial real estate, merger and acquisition activity rebounded by the end of 2020 and is on track for an even more robust 2021.

Despite a slowdown in dealmaking in the second quarter of 2020, activity actually surged in the second half of 2020, enough to vault annual volume above $3 trillion for the seventh consecutive year, according to Morgan Stanley. By fall 2020 and winter 2021, the pace of M&A announcements exceeded historical averages. In the fourth quarter alone, a record 1,250 global M&A transactions were announced, totaling more than $1 trillion.

“COVID-19 gave companies a rare glimpse into their future, and many did not like what they saw,” notes Brian Levy, Global Deals Industry Leader and Partner, PwC US. “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.”

1. Low Interest Rates Keep the Cost of Borrowing Down

Access to inexpensive capital was largely responsible for the rebound of M&A activity in the latter half of 2020, and may continue to drive the market through 2021. As the pandemic recedes and economic activity rebounds, low interest rates are expected to keep the cost of borrowing down, fueling deal flow.

M&A still presents itself as one of the most attractive ways for companies to achieve growth, and with a historically low cost of capital, dealmaking is expected to surge. 

2. COVID-impacted Sectors to Rebound

With so much uncertainty ushered in by the pandemic, last year’s M&A activity was concentrated in sectors deemed the least impacted by COVID-19, such as health care and technology. 

With the pandemic subsiding, stronger M&A activity is expected in industries left behind last year, such as aerospace, hospitality, commercial real estate and retail. 

Indeed, more businesses are now emerging with a better line of sight into how they can rebound, leading to more clarity on valuations and pricing for purchases or sales. “We see a return to more normal operating conditions for some sectors that were impacted from an M&A perspective in 2020, such as industrials, consumer discretionary or natural resources,” notes Tom Miles, co-head of Americas M&A at Morgan Stanley. “Last year, buyers and sellers in these sectors had a harder time agreeing on the appropriate valuation because they didn’t have a clear outlook for what 2021 or 2022 would look like. That is changing rapidly.”

3. Cross-border Mergers to Rebound

With a slowdown on global travel, bankers were challenged to conduct virtual due diligence on targets in foreign jurisdictions. Travel restrictions aside, certain political and regulatory issues arose during the pandemic that created an uncertain environment for dealmaking. 

However, according to Morgan Stanley,  international M&A activity declined for a second straight year in 2020, long before COVID-19 lockdowns and travel bans were put in place. COVID-19 only added more uncertainty, as the pandemic coincided with the U.S. presidential election and continued regulatory scrutiny in certain sectors.

As the pandemic recedes,  cross-border dealmaking will rebound, as international targets will remain a focus for companies looking to scale globally, strengthen supply chains and access mission-critical technologies and IP. 

4. Companies Increasing Scale and Acquiring Technology

During the pandemic, it became clear that only businesses capable of overnight digital transformation would have the most prospects for survival. Those that were already 100% digital were able to weather the storm from a much stronger position.

Technology drives growth, efficiency and innovation, and as digitization of the economy continues across industries, technology companies will continue to serve as attractive M&A targets across several sectors this year. Technology allows companies to scale their operations, and with added size, companies are in a stronger position to  survive any current or future market upheavals. 

5. SPACs Will Continue to Grow 

Special purpose acquisition companies (SPACs) — shell companies created for the sole purpose of taking a private company public — have existed for decades but have suddenly become a much more popular alternative to a traditional IPO or private sale transaction. 

SPACs may continue to be a significant presence in the 2021 M&A market for several reasons. Among these are their finite window to identify transaction targets — 18 to 24 months — creating a sense of urgency and the fact that public market valuations usually exceed valuations of private companies.

In 2020, SPACs raised $79.87 billion in gross proceeds from 237 counts, surpassing the record of $13.6 billion raised in 2019 (raised from 59 IPOs). 

The Best Solution for M&A

M&A activity is rebounding, and while travel bans have been lifted and corporations and their bankers will be traveling more freely during the dealmaking process, a virtual data room (VDR) still offers the best option for private and secure document access to support a transaction.

A VDR needs to be more than simply a cloud document hosting and management platform for those involved in and M&A transactions. Organizations should consider an enterprise virtual data room like Caplinked that has years of experience providing data rooms for sensitive and complex M&A transactions and their integration afterward. 

Ready to see how Caplinked can help your company take advantage of the M&A boom? Sign up for a free trial today.

Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.


MorganStanley.com – M&A in 2021: An Accelerating Rebound?

PwC.com – Global M&A Trends

Nasdaq.com – 2020 Has Been the Year of SPAC IPOs