Artículos de opinión
Stable and dynamic M&A momentum despite the pandemic
The European M&A market has been unexpectedly stable throughout the pandemic, both in 2020 but also in the months leading up to summer 2021. Year-to-date, total deal value is on a record pace amid the economic recovery, and we continue to see a very high number of transactions throughout all deal sizes and industries. Whilst 2020 has already been far better than expected in term of deal volumes and numbers, 2021 does indeed benefit even more from the resumption and completion of M&A processes put on hold during 2020. In terms of industries, technology and business services have proven the most robust industries with roughly 50% of the observed transactions, followed by industrial manufacturing. Compared to the pre-covid period, consumer market deals have seen a dip being among the industries most affected by the pandemic.
Sponsor led deals are still firing the market
Financial sponsors have remained a key strength as a driving force in M&A both in 2020 and 2021. Deal values involving Private Equity both as buyers and as seller across all sizes have been rising in the past two years compared to the years leading up to the pandemic. We have seen continued fundraising activity from Private Equity in the last 18 months which has led to abundant dry power sponsors who are able to deploy in transactions. Many fundraisings have been completed faster and ahead of the fundraising goals in the last two years.
Valuations that have already been at historic levels have not deteriorated significantly during the pandemic, leaving less room for multiple arbitrage strategies. Instead buy-and-build strategies have moved back into the flavor for financial sponsors. Often, we see a very fast pace of add-on acquisitions being performed, starting immediately after a Private Equity buyer has picked up an asset. With plentiful funds nearing their vintage period, Private Equity exit activity has fueled the market for secondary sponsor transactions. A process that is likely to continue.
Well capitalised corporate buyers
In addition to sponsor led deals, many corporates remain well capitalized benefiting from substantial lending capacity of debt capital markets and their M&A teams are taking up the opportunity to tap into the larger pool of available assets. After facing economic headwinds and uncertainty, resulting in corporate buyers staying rather on the sidelines throughout most of 2020, their appetite has improved and corporate buyers have been involved in some of the largest transactions we have observed in 2021. For listed companies, we also have seen very positive investor reactions with stock markets spiking based on the release of M&A related announcements.
Lower number of distressed deals comparing to 2020
In Q1 and Q2 of 2020, we have seen a significant surge in distressed M&A deals fired by the first lockdown, acute cash squeezes and uncertainties over the economic environment. Some transactions were the immediate result of the lockdown as businesses have become cash strained and some businesses which had been struggling before became insolvent within the course of a few months. Not surprisingly, trade and tourism have been the industries most affected by the lock-down and a majority of distressed transactions did occur in two industries.
On many other instances, business units that have been marked as non-core by their owners have been put on the block as corporates gave up waiting for the optimal timing to flush out their portfolios. Instead, as the pandemic struck and the outlook for low-performing assets deteriorated even more, many corporates decided to hit the block with their underperforming assets before things would turn even worse.
Good timing for entrepreneurs to address their succession
2020 has been rather difficult for SME transactions despite the overall good momentum, because the lack of visibility affected SMEs more than larger and more diversified businesses. Moving into 2021, transactions in the EUR 20mn to EUR 100mn range have picked-up significantly.
Visibility for SMEs has improved allowing sellers and bidders to form a good view on post-pandemic business. In turn, this means that bidders are currently willing to value businesses based on pre-covid levels assuming that 2022 will be mostly back to normal for most entrepreneurs. Also, with larger deal sizes being very competitive, the trend of sponsors to create funds that better cater for the needs of smaller SMEs, both in terms of deal size and investment horizon, continues. This has created a very attractive environment for owners of SMEs which currently find a large universe of financial sponsors as an alternative to corporate buyers providing peak valuations and transaction speed and efficiency.
We believe the M&A momentum resulting from the large supply of businesses available for sale is likely to continue for the next 6 to 12 months fueled by secondary transactions launched by Private Equity but also a backlog in SME transactions. We believe we will see a weakness in large corporate and distressed transactions though. Overall, the pandemic has done little to slow down the M&A momentum. Private Equity appetite across all industries and transaction sizes and active debt-capital markets have created a goldilocks scenario for transactions that is likely to continue into the next year.