M&A Quarterly Review — 4th Quarter 2020

Recent bounce back in M&A activity is likely to continue in 2021

The M&A market rallied during Q3 2020

  • Deal value and volume rebounded sharply in Q3 2020, but still lagged the previous year on a TTM basis
  • Total deal value during the nine months ended 9/30/20 was the lowest since 2013
  • Valuation multiples fell because the data included more underperforming businesses

Companies are liquid and capital is plentiful

  • The rush to shore up liquidity has run its course, evidenced by lower usage of and higher availability on lines of credit
  • US companies continued to fortify balance sheets in Q2 2020 as cash levels hit new records
  • Global private equity dry powder at the end of Q1 2020 was slightly above the long run average

Most economic indicators are encouraging, but conviction is waning

  • GDP registered one of its steepest expansions on record in Q3 2020
  • The Leading Economic Index® (LEI) improved for the sixth consecutive month in October, but may be leveling off
  • Consumer confidence declined in November as COVID lingered and a quick, sustained recovery seemed less certain

The bounce back in M&A activity is expected to continue in 2021

  • Valuation multiples will likely hold steady as the market continues to digest underperforming businesses
  • Volume is expected to moderate after the Q3 2020 surge and revert to pre-COVID levels
  • Equipped with better visibility, strategic buyers will likely be sourcing more deals again

Risks to our view

  • The third wave of COVID exacerbates labor shortages and cripples supply chains
  • Further deterioration in consumer confidence and a subsequent pullback in consumer spending
  • CARES Act programs and protections expire at year end and Congress fails to provide more relief