Transformational M&A is the priority within a new global business landscape

Written by the US team of ONEtoONE Corporate Finance


The M&A boom of 2019 has turned uncertain in 2020. But, there are islands of strong investment activity. M&A investments will be more centered on emerging technologies that enable corporate transformations or entry into new market formations. Strategic investment decisions will be made with an eye beyond growth in revenue, margin, or market share. The COVID-19 pandemic and economic recession have served to accelerate structural business changes that have been evolving across the global market. Supply chain resilience, distributed workforce optimization, skillset realignment, AI-infused business processes, and corporate end-to-end sustainability are a few of the areas where corporations are revamping operations and portfolio to meet the 21st century economy. Companies’ fundamental realignment of investment focus will likely remain through 2025.

Aggregate 2020 deal volume for the middle, large, and mega markets will be down 45% from 2019 levels. There will be nearly 70% fewer megadeals, but M&A within the North American middle-market sector will drop only about 30% from 2019’s highs. Other sectors of M&A activity through 2021 will be in distressed funding and accelerated industry roll-ups. Our takeaways for the 2020-2021 North American M&A market:

1) Heightened Demand for Disruptive Technology to take advantage of entirely new markets and to stay ahead of competitive market entrants.

2)Transformational change needed for entire portfolios in order to increase market penetration in fast-growing sectors, such as BioTech, medical/health services, IT infrastructure, sustainability, ClimateTech, natural resources, Telecommunications, FinTech, and core technology disruptors (AI, IoT, Cloud, Blockchain).

3) Cross-border M&A remains strong, aided by new foreign direct investment legislation in key markets, such as in UAE and China, will give impetus to North America looking outside of its borders for transformative assets. At the same time, North America will remain attractive investment geography because of its advanced technology and healthy consumer markets.

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world post COVID

4) PEs and VCs turn from small deals to branded companies, while corporations look for value deals, market consolidation, and recapitalization. It is expected these activities will stay near the rubric of portfolio or capability transformation.

5) Buyers will heavily weigh Environmental and Social Sustainability (ESG) and corporate data security integrity, particularly as it relates to GDPR compliance. A company’s ESG and data privacy capabilities will be major determinants of its value and fit for future business platforms or add-ons.

6) Historical levels of cash available for M&A, with PE firms holding $2.4 trillion, US corporations’ access to $2.2 trillion, and non-financial institutions/groups raising $6 trillion in debt & equity. Even if the economy continues its GDP losses, these levels of capital are unlikely to tighten to the extent seen during the 2007-2009 Great Recession.

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