In its latest 'Global Mergers & Acquisitions (M&A) Industry Trends' analysis, PwC finds that deal volumes went up 18% in the second half of 2020, while deal values increased by 94%, compared with the first half of the year.
Deal activity in the second half of last year experienced a surge despite continued uncertainty created by Covid-19 across the world.
Deal volumes and values were also higher than they were in the second half of 2019.
"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,” explains PwC US partner and global deals industries leader Brian Levy.
He adds that the higher deal values in the second half of 2020 were partly owing to an increase in megadeals valued at more than $5-billion. Overall, 56 megadeals were announced in the latter six months of the year, compared with 27 in the first six months of the year.
PwC notes the technology and telecom subsectors saw the highest growth in deal volumes and values in the second half of last year, with technology deal volumes up 34% and technology values up 118%, compared with the first half of the year.
Telecom deal volumes were up 15% and telecom values were significantly up by almost 300% owing to three telecom megadeals.
On a regional basis, deal volumes increased by 20% in the Americas; 17% in Europe, the Middle East and Africa; and 17% in Asia Pacific between the first and second half of 2020.
The Americas saw the biggest growth in deal values of over 200%, primarily owing to some significant megadeals in the second half of the year.
Meanwhile, PwC says Covid-19 has accelerated 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 $7.6-trillion in cash and marketable securities – and private equity buyers at about $1.7-trillion.
By comparison, assets in sectors that have been hardest hit by the pandemic, such as 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 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,” PwC states.
The professional services firm adds that, with so much capital out there, good businesses are commanding high multiples and achieving them. If this continues, then the need to double down on value creation is now more relevant than ever for successful M&As, says PwC Spain partner and global deals leader Malcolm Lloyd.
Further, PwC finds that the last six months of 2020 saw the prevalence of the use of special-purpose acquisition companies (SPACs) to pool investor capital for acquisition opportunities in a highly active initial public offering (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.
PwC expects more SPAC activity in 2021, especially involving assets such as electric vehicle charging infrastructure, and power storage and healthcare technology.