Mergers & Acquisitions

Dealmakers Are Optimistic for a Strong Second Half of 2020

By Rusty Wiley, CEO of Datasite

The COVID-19 pandemic has taken a heavy toll on global dealmaking in the first half of this year. As companies retreated from growth and expansion plans to concentrate on protecting their operations and employees, global deal value plummeted to $902 billion by the end of 2020’s second quarter, 53% below the same period the year before, and global deal volume dropped to 6,943 deals, down 32% year-over-year.

Since the start of summer, however, there have been encouraging signs of a rebound. On Datasite’s platform, which facilitates close to 10, 000 deals a year or about 20% of global deal volume, we started to see an uptick in activity in June, especially from strategic buyers and the middle market, which has continued through August. In fact, new projects created on our platform were up 11% in July and 23% in August, compared to the same time last year. 

From a regional view, projects on our platform in the Americas and Asia Pacific (APAC) had the biggest bounce back in June, though EMEA projects have regained their footing and are now up 21% in August.

In terms of sectors, technology, media and telecoms (TMT) and life sciences are leading the way. The move to virtual and cloud environments has helped the TMT sector. For example, companies that were able to easily shift their workforce to remote are seeing increased interest from strategic and financial buyers. Life sciences is also getting its fair share of attention, especially for companies with COVID-19-specific products. In fact, Datasite was the collaboration platform for a licensing agreement between a major pharmaceutical company and university in support of a COVID-19.

But while this explains some of the recent M&A activity, there are other factors driving the global uptick.

Government stimulus plans certainly helped enhance liquidity, but a recent survey of over 600 dealmakers polled across the Americas, Europe, the Middle East, Africa (EMEA), and APAC, found that increased consumer confidence and restructurings are the key drivers of the M&A market recovery.

This demonstrates that companies are adjusting to the new normal, are starting to think bigger, and are modifying their strategic priorities to reflect life after the pandemic, including using strong balance sheets to acquire competitors or other strategic assets that may not be in as resilient a position. Others are taking advantage of innovative technology and are now emerging from the downturn stronger and eager to create value through acquisitions, not just to survive but to thrive. Of course, some companies are still fighting to recover which explains why restructurings are also helping drive new activity.

Different industry and regional approaches to restructuring

While the TMT and life sciences sectors are making strategic moves, some companies – such as those in the hospitality,retail and travel and tourism sectors – have been dealing with negative cash-flows, which have drained their funds, and in some cases, their ability to operate. These sectors are likely to continue to seek strategies to address their financial positioning and sustainability. In fact, dealmakers globally expect bankruptcies and defensive carve outs to drive M&A activity in the next six months, at least in the Americas and EMEA, while APAC dealmakers anticipate making more asset purchases and sales by the end of the year.

Through it all though, companies and their advisers have been increasingly turning to online or remote technologies to conduct their negotiations, market their assets, prepare for a sale and conduct due diligence, sometimes even with drones. Additionally, new technologies such as artificial intelligence (AI), are further speeding up the transaction process by automating several low value tasks associated with it. For example, one of the most challenging parts of the M&A process is organizing and preparing the files needed for review by potential investors or purchasers. AI and machine learning are streamlining this process, making it possible to upload thousands of files while categorizing and placing them into folders in a matter of minutes, not weeks. This type of automation saves dealmakers valuable time which can be better spent on higher value add activities.

The global pandemic has deeply impacted the way we work, and that impact has undoubtedly extended to the M&A industry and the way deals get done. These changes, along with a steady stream of new deals and restructurings, should continue to drive strong deal volumes throughout the remainder of 2020.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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