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Could 2021 Be a Record Year for M&A?

By Generational Equity

01/25/2021

In reality, this is a question that many analysts couldn’t even fathom back in March and April of 2020 when the economy went on various degrees of lockdown and travel became a challenge for dealmakers and buyers. However, an amazing thing happened: Buyers got even more aggressive the latter half of 2020; a trend we expect to see continue in 2021.

A recent article in the Financial Times summed up the last six months of 2020 this way:

A flurry of big deals in the last few weeks of 2020 drove global mergers and acquisitions to $3.6tn in 2020, representing an extraordinary rebound of takeover activity in the second half of the year.

The 2020 total value of deals is down 5 per cent from 2019, according to data from Refinitiv, but constitutes a dramatic recovery from the first half when the spread of Covid-19 brought deal making to a halt.

Companies struck more than $2.3tn worth of deals since the start of July, an increase of 88 per cent from the first half, according to Refinitiv. Activity in each of the third and fourth quarters of this year surpassed $1tn, marking only the second time since 2008 where deal making exceeded that level in consecutive quarters.

Our latter half of 2020 was also a record time for us. During those six months, we closed more deals than in any six-month period in our history AND 2020 ended up being a record year in terms of deals closed (actually our third record year in a row).

Now many of you reading this may be surprised at this news. You shouldn’t be. You see professional buyers, the kind of folks you want to acquire your company take a much longer-term view of the economy than most business owners. Many of you are so focused on the day-to-day operations of your business, that you lose sight of the future.

But buyers don’t. Remember (and this is especially key in today’s environment):

  • Buyers are Buying Your Company’s Future NOT its Past…

In fact, a new “recasting” term was born in 2020: EBITDAC (earnings before interest, taxes, depreciation, amortization and COVID).

Sage buyers know that the old axiom is true: This too shall pass…

We may be bruised and battered a bit by it, but buyers will be undeterred, especially Equity Firms and Corporate Strategics that collectively had billions on their balance sheets to make acquisitions before the pandemic struck.

How many of you remember the housing crisis and subsequent near-complete meltdown of our financial system in 2008 and 2009? Although it took a few years to recover (since financing was hard to come by – unlike today’s environment), within a few years we were in the midst of one of the strongest M&A seller’s markets in ages.

Amazingly, based on 2020-year end data, we still are in a seller’s market and once the economy starts to fully recover in the third quarter of 2021, we expect the flood of capital into privately held businesses will be substantial.

The key though is this: You have to be building a “buyer ready” business now to take advantage of the pending full recovery and buying spree. Your ability to do so, while still in the midst of a pandemic is dependent on how much knowledge you have about what buyers are looking for in targets. Too often unknowing business owners focus on strategies that they think are building value, but they are not.

Fortunately, Generational and its team of professionals are here to help. We created Generational Consulting Group (GCG) about a year or so ago when we realized that business owners needed help conceptualizing how to build value, even during tough times. Have a listen to what a few of our GCG clients have to say about how our services are helping them:

To learn more about the full range of services we offer our clients (in additional to finding and negotiating with buyers, we also offer a Wealth Management Team that can help you preserve your new-found liquidity), reach out to us at 972-232-1121 or visit our website, leave your contact information, and we will be in touch.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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