Global M&A activity plunged to lowest level in 2020 despite 'exceptional' rebound in Q4: WTW

Global mergers and acquisitions' (M&A) activity tumbled to its lowest level in 2020, despite an "exceptional rebound" in the final three months of the year, but experts at Willis Towers Watson expect a dealmaking surge in 2021 driven by demand, ample funding, ultra-low interest rates.

The COVID-19 pandemic dragged M&A activity to its lowest level since the aftermath of the financial crisis over a decade ago. The latest data reveals that companies worldwide completed just 674 deals valued over $100 million in 2020, significantly less than the previous year (774) and the lowest annual volume since 2009 (322).

However, WTW noted that buyers in North America bounced back in the final three months to record their best quarter-on-quarter performance. This resurgence marked the region’s first positive quarterly performance in three years.

Meanwhile, European acquirers maintained resilience by outperforming their regional index by +5.3pp in Q4, while UK buyers continued to shrug off Brexit challenges by beating the European Index by +4.1pp for the full year.

The report also stated that market conditions in the APAC region remain volatile following a negative quarterly performance of -8.7pp.

“The year 2020 has been unlike anything we’ve ever seen, fuelled by an enduring pandemic, massive economic uncertainty, a highly divisive US presidential election and rising geopolitical tensions," said Jana Mercereau, head of corporate M&A consulting, GB at Willis Towers Watson.

Despite the uncertain economic outlook, analysts believe that conditions are primed for a dealmaking surge in 2021 but warned that the road to recovery will not be smooth.

"While the world in 2021 remains a volatile place, pent up demand, ample funding, ultra-low interest rates and confidence returning to boardrooms indicate conditions are ripe for one of the biggest M&A years on record,” she said.

According to Mercereau, among the top trends for the year ahead will be a 'substantial' change in the criteria for dealmaking - companies will likely look beyond the borders of Europe and North America to new markets to access the right talent. Mercereau says the implications of this trend for the M&A market in 2021 and longer term will be "significant".

Additionally, a new wave of Special Purpose Acquisition Companies (SPACS) seeking acquisition targets outside of North America in 2021 is more likely to be seen in markets less tightly regulated than Europe.

Furthermore, the shift to remote working practices precipitated by the pandemic and calls to pursue a ‘green’ economic recovery are expected to drive M&A activity in the tech sector in 2021 and beyond.

WTW analysts also highlighted that the political and economic uncertainty in the UK post Brexit will inevitably lead to some market volatility and disruption, creating M&A opportunities in 2021 for UK businesses and overseas buyers, as some sectors benefit from severing ties with the European Union, whilst others struggle.

Mercereau remarked: “The pandemic demonstrated a need for companies to double-down on efforts to adopt innovation into existing business models and focus on a digital approach to build new routes to market. Following a rollercoaster year for M&A, firms will continue to look to build resilience to withstand future shocks or crises, with an increasing number of transactions across all sectors focused on diversification and capturing long sought-after capabilities.

“That said, dealmakers should not assume a corner has been turned, with uncertainty set to remain. It will be as critical as ever for acquirers to pick their targets carefully for growth, before jumping into a deal if they are to give themselves the best chance of success. A dedicated focus on HR and people-related risks during due diligence and integration can help achieve this.”