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
