Introduction
The COVID-19 global pandemic has had a significant impact on businesses in 2020. Businesses had to focus on the pandemic and had to revise their strategies to adapt and respond to the challenges that were brought about by the pandemic in their respective markets. The merger and acquisition market, like the global economy, was significantly impacted, but projections for 2021 indicate that the market will rebound as the global economy rebounds to a growth trajectory.
A buoyant global M&A market will heavily rely on a favourable deal-making environment, which will enable deal makers to pursue attractive M&A opportunities in 2021. At 7i Capital, we have noted several positive M&A trends in 2021 which we are going to discuss in this article. So, read on to discover more.
Low capital costs in supportive markets
In the second half of 2020, the M&A market had access to inexpensive and lots of capital, and this is expected to drive global deals in 2021. The global economy is returning to a growth trajectory this year, and with the continuing low-interest rates, the cost of borrowing will remain down. The low cost of borrowing combined with the expected companies’ renewed confidence to allocate capital, could lead to an increase in deals.
Cross border merger and acquisition is one of the most attractive ways for companies to realize increased growth, and 2021 could be an active year for M&A, especially due to the low cost of capital.
Remote deal process and preparation
The global coronavirus pandemic fuelled the elimination of in-person meetings. Dealmakers had to act quickly to adapt their deal processes, preparation, and due diligence. Companies had to shift to technology solutions that enable remote conferencing, due diligence, and other aspects of preparation involved in mergers and acquisitions. In 2021, we do not expect the deal process, preparation, and due diligence to return fully to what used to be the pre-pandemic normal.
More and more deals are now being sourced and completed virtually with increased utilization of virtual meetings and virtual data rooms.
Additionally, buyers are looking deep into all aspects of a target company that are likely impacted by the global pandemic.
Technology-driven deals
Technology has been a major driving force of growth, efficiency, and innovation of the economy across industries. This has been massively experienced in how we do business in the wake of the pandemic. In the third and fourth quarter of 2020, we experience an increase in M&A activity in the technological sector.
In 2021, tech companies will drive a large portion of deals, especially because companies are focused on strengthening their positions, accessing more capital markets, and increasing their operational scale. Moreover, companies are increasingly investing in new and emerging technologies like artificial intelligence, the internet of things (IoT), and cloud computing to achieve more growth.
SPACs
SPACs or special purpose acquisition companies were a huge trend in 2020, and this is expected to continue through 2021. More than 240 SPACs were launched in 2020, and by the end of the year, there was about $2.9 trillion of available capital. The presence of SPAC will continue to be significant in the M&A market in 2021 and most active in sectors including technology and healthcare.
Conclusion
These are just some of the cross-border merger and acquisition trends in 2021. As the global economy rebounds, we’re going to see increased activity in the M&A market. Technology has been the major driving force for transactions, deals, and partnership investments since 2020 and will continue in 2021.