M&A Quarterly Review — 1st Quarter 2021

Optimism builds as the light at the end of the pandemic grows brighter

The M&A market continued to rally during Q4 2020

  • Deal value and volume surged in Q4 2020, powering 2020 past 2019 in terms of full year activity
  • Total deal value during the three months ended 12/31/20 was the highest on record
  • Valuation multiples bounced back in Q4 2020, aided by improving financial results and higher demand from PEGs

The cost and supply of capital continue to underpin a strong M&A market

  • Debt issuance increased in Q4 2020 and interest rates remain near multi-year lows
  • Corporate cash grew to $1.9 trillion at the end of Q3 2020, 23.8% higher than at the beginning of 2020
  • PE dry powder will remain high as total AUM is expected to reach $9.1 trillion by the end of 2025

The economic recovery continues, but concerns include unemployment and inflation

  • GDP growth was strong in Q4 2020, but not enough to overcome a contraction on a YoY basis
  • The Leading Economic Index® (LEI) improved for the 8th consecutive month in December, but may be leveling off
  • Consumer confidence recovered marginally in January 2021, prompted by growing optimism about the vaccine rollout

The bounce back in M&A activity may accelerate in 2021

  • Sectors most impacted by COVID-19 are starting to recover and COVID-19 is causing certain trends to accelerate
  • Companies will look to increase scale and acquire technology to revamp processes and redefine efficiency
  • Cross-border M&A will recover and firms will reconsider their supply chains

Risks to our view

  • The surge in M&A activity during the second half of 2020 could lead to a lull during the first half of 2021
  • Buyers and sellers may struggle to agree on COVID-19 adjustments and decide to wait for more certainty
  • The positive trend in COVID-19 cases turns negative or inflation and interest rates climb significantly