M&A valuations are soaring, with rich valuations and intense competition for many digital or technology-based assets driving global deals activity, according to PwC’s latest Global M&A Industry Trends analysis.

Covering the last six months of 2020, the analysis examines global deals activity and incorporates insights from PwC’s deals industry specialists to identify the key trends driving M&A activity, and anticipated investment hotspots in 2021.

In spite of the uncertainty created by COVID-19, the second half of 2020 saw a surge in M&A activity.

“Covid-19 gave companies a rare glimpse into their future, and many did not like what they saw. An acceleration of digitalisation and transformation of their businesses instantly became a top priority, with M&A the fastest way to make that happen — creating a highly competitive landscape for the right deals,” says Brian Levy, PwC’s Global Deals Industries Leader, Partner, PwC US.

Dealmaking jumped in the second half of the year with total global deal volumes and values increasing by 18 per cent and 94 per cent, respectively compared to the first half of the year. In addition, both deal volumes and deal values were up compared to the last six months of 2019.

The higher deal values in the second half of 2020 were partly due to an increase in megadeals (USD5 billion+). Overall, 56 megadeals were announced in the second half of 2020, compared to 27 in the first half of the year.

The technology and telecom sub-sectors saw the highest growth in deal volumes and values in the second half of 2020, with technology deal volumes up 34 per cent and values up 118 per cent. Telecom deal volumes were up 15 per cent and values significantly up by almost 300 per cent due to three telecom megadeals.

On a regional basis, deal volumes increased by 20 per cent in the Americas, 17 per cent in EMEA and 17 per cent in Asia Pacific between the first and second half of 2020. The Americas saw the biggest growth in deal values of over 200 per cent, primarily due to some significant megadeals in the second half of the year.

Covid-19 accelerates deals activity for digital and technology assets in a highly competitive market

In demand assets have commanded high valuations and fierce competition, driven by macroeconomic factors. These include low interest rates, a desire to acquire innovative, digital or technology-enabled businesses and an abundance of available capital from both corporate (over USD7.6 trillion in cash and marketable securities) and private equity buyers (USD1.7 trillion).

By comparison, assets in sectors that have been hardest hit by the pandemic like industrial manufacturing or those being shaped by factors such as the transformation to net zero carbon emissions are creating structural changes that companies will need to address. Where the future viability of their business models are challenged, companies may look to distressed M&A opportunities or restructuring to preserve value.

Non-traditional sources of value creation such as the impact of environmental, social and governance factors (ESG) are increasingly being considered by deal makers and factored into strategic decision-making and due diligence, as they focus on protecting and maximising returns from high valuations and fierce demand.

“With so much capital out there, good businesses are commanding high multiples and achieving them. If this continues – and I believe it will – then the need to double down on value creation is now more relevant than ever for successful M&A,” says Malcolm Lloyd, Global Deals Leader, Partner, PwC Spain.

The last six months saw the prevalence of the use of special-purpose acquisition companies (SPACs) to pool investor capital for acquisition opportunities in a highly active IPO market. In 2020, SPACs raised about $70 billion in capital and accounted for more than half of all US IPOs. Private equity firms have been key players in the recent SPAC boom, finding them a useful alternative source of capital. More SPAC activity is expected in 2021, especially involving assets such as electric vehicle charging infrastructure, power storage, and healthcare technology.

Source: Private Equity Wire