Cautious Optimism Ahead for Global M&A in Q4 2020
Recovery will rise above obstacles, according to the newly published SS&C Intralinks Deal Flow Predictor.
1 September 2020
The COVID-19 pandemic continues to change our world — and upend the global economic climate.
Our forecast of what lies ahead for M&A is out now: the SS&C Intralinks Deal Flow Predictor for Q4 2020. Here’s a bird’s eye view of what is happening and lies ahead from our vantage point.
Challenges for advisors
The mood among M&A dealmakers, globally, seems positive. But it’s with an obvious feeling of uncertainty: COVID-19 caused a Q3 jump in distressed and bankruptcy-related M&A deals. While most sectors of the global economy remain shaky, advisors are finding the need to adapt to a new pipeline. That’s complicated by major uncertainty in terms of corporate projections in most sectors of the economy.
A panic slowdown
I’m seeing that early-stage activity is slightly down globally and across most sectors. But the initial panic button of stopping all processes, suspending due diligence, swallowing termination fees and the like, won’t be materializing in a sustained manner.
Global valuation challenges
I’m also seeing a shift in how M&A dealmakers are approaching valuations in the COVID-19 era. Companies with cash, or with valuations that have recently increased, are starting to look at assets and are starting discussions very quickly. Many are jumping on opportunities. The short-term movements in valuation affect public companies greatly, while private companies can wait —and avoid activist or hostile takeovers. For the public companies, however, it’s another story: they’re now increasingly protected by governments.
Some sturdy global sectors
Industrials, Tech and Healthcare Pharma have seemed to remain solid during the global crisis. Then there are those heavily impacted: Energy, Consumer Retail and Consumer Discretionary. Their stresses from Q2 2020 have spilled over into Q3.
Yet, deal flow survives
In North America and many parts of Europe, there’s been a pickup in deal flow. But advisors aren’t popping champagne just yet; the environment still displays fragility. After Labor Day in the U.S., the market should present a better picture of new deal potential.
Understanding the types of deals that are starting will take us some time. We envision many distressed assets and sales processes are coming to market as temporary prop measures — ike short-term sponsor funding, credit and covenant leniency and direct government injection into essential industries — start to temper.
Globally, one of the most profound effects of the pandemic on M&A deal starts could be a slowdown caused by protectionism, as more and more assets are classified as sensitive or critical by governments — even in the U.S.
Along with our forecast of M&A activity for the next six months, the latest issue of SS&C Intralinks Deal Flow Predictor includes:
- Spotlight feature: Are we in an epidemic of disputes? Read about the effects of COVID-19 on MAE/MAC clauses — and how to navigate them in a new M&A environment.
- An interview with Blair Nimmo, partner, UK Head of Restructuring and Global Head of Insolvency, at global accountancy and financial advisory firm KPMG, about the challenges his clients are facing, the role of technology in the age of remote work and his view on M&A, restructurings and insolvencies.
- An in-depth special report, Global M&A Catches Its Breath in an Uncertain Market, featuring regional spotlights using data provided by PitchBook.