M&A market shows signs of recovery in second half

Deal activity across regions and sectors came to a near standstill in H1 as the pandemic spread rapidly around the globe. The effect of that has been to depress both deal value and volume for the year as a whole, down by 8% and 9% respectively.

Strong recovery in deal activity

But those figures obscure an extraordinarily strong recovery in deal activity that began in the late summer and has continued through the rest of the year, with private equity funds playing a particularly active role in the turnaround.

Against that background we are seeing something of a recovery in the value of cross-border transactions, which have been under pressure for some time. However deal volume for the year remains depressed.

Despite the uncertainties caused by Covid-19 and a highly divisive presidential election, the U.S. remains the most active outbound investor and the leading target nation for inbound investment.

In some sectors we are seeing investors do a larger number of smaller transactions.

Megadeals have therefore declined, having underpinned overall market growth in recent years.

• The value of deals over USD5 billion has declined by 8%.
• The value of deals in excess of USD10bn have fallen by 21%.
  
  

Will the market recovery last?

The big question is: can the recovery in deals be sustained?

There seems good reason to believe it can. Global stock markets have soared, both on the election of Joe Biden and on news that three potential vaccines have proven highly effective in late trials.

Markets seem to welcome the return of a more predictable kind of politics and the fact that a Democratic President will probably be held in check by a Republican Senate. But there are reasons to be cautious as well. The pandemic is far from under control and the scope for severe long-term economic shocks in its wake remain very real.

Market conditions could stay pretty choppy in 2021 as a result and investors’ nerves will continue to be tested in the months ahead.

Split of global M&A deals by value

Deal value % change from Q4 2019