M&A Quarterly Review — 2nd Quarter 2021

Buyers and sellers took a breath but activity remains steady

M&A activity moderated but remained steady in Q1 2021

  • While deal volume declined on a sequential QoQ basis, activity remained in line with a year ago
  • Total middle market deal value continued to climb in Q1 2021, setting a record for any first quarter
  • Valuation multiples eased as more sellers looked to exit ahead of anticipated tax hikes in 2022

The availability and cost of capital continue to drive deal making

  • Debt issuance skyrocketed in Q1 2021 and interest rates remain at or near multi-year lows
  • Companies in the S&P 500 ended 2020 with $2.7 trillion in cash and equivalents, up nearly 20%
  • PE dry powder will remain high as total AUM is expected to reach $9.1 trillion by the end of 2025

The economic recovery is building momentum, but concerns remain

  • GDP growth accelerated in Q1 2021, raising expectations of a faster and sustained economic recovery
  • The Leading Economic Index® (LEI) improved for the second consecutive month in April
  • Consumer confidence slipped in May 2021 as optimism was tempered by a softening labor market

The strength in M&A activity is expected to continue through 2021

  • The universe of buyers and investors continues to swell which presents more alternatives to sellers
  • Companies are exploring divestitures so they can focus on and invest in their core business
  • The pandemic and trade tensions are causing companies to consider deals that shorten their supply chains

Risks to our view

  • Labor shortages and supply chain issues continue to delay the post-pandemic recovery for some companies
  • Faster than expected inflation leads to higher interest rates and lower deal activity
  • Buyers and sellers may struggle to agree on COVID-19 adjustments and decide to wait for more certainty