What’s Ahead for M&A Activity in North America in Q4 2020?

Recovery? It’s relative — as COVID-19 looms.

1 September 2020

North America-Q42020-Deal-Flow-Predictor-M&A

The U.S. is still greatly impacted by the lingering economic effects of COVID-19. Even still, the outlook carries a cautious optimism in the wake of much uncertainty.

Aside from a bump in M&A deal announcements forecasted in the newly published SS&C Intralinks Deal Flow Predictor for Q4 2020, the impact on North America depends on who you ask.

If you’re a large strategic with a strong balance sheet and cash reserves, you’re taking note of assets at a reduced price.

If you’re a private equity (PE) firm with a focus on Tech, you’re excited about how it will shape the post-COVID-19 world.

A restructuring banker? You may need to let your family know that you may not be leaving your virtual office much over the next 12 months.

And, if you’re a sell-side banker, you’re experiencing some very real challenges with finding interested buyers and getting deals across the finish line due to valuation gaps and COVID-19’s impact on due diligence. 

Volatility remains

Transactions that were put on hold at the beginning of the pandemic are now coming back to life. And — albeit slowly — deals are getting done. Real Estate and Telecommunications, TMT are leading sectors in the territory forecast for Q4 2020. But it’s worth paying attention to Retail, Restaurants, Automotive Aftermarket supplier and any business in the Travel, Leisure and Hospitality space.

Despite substantial stresses in Q2, the U.S. recovery arch looks promising. Much will rely on the discovery and subsequent deployment of a COVID-19 vaccine and therapeutic. 
Until then, the lack of ability to perform due diligence onsite is only creating inefficiencies.

With one of the highest COVID-19 infection rates in the world – along with the upcoming U.S. presidential election in November – we anticipate sustained volatility unless the markets can uncouple themselves between real economy numbers and M&A volume.

Canada has bucked an overall trend of slow M&A. The steady rise in gold and copper prices has made their Metal and Mining industry attractive to foreign capital. Our investment banking and corporate customers report that the trend of “mergers of equals” in this space will continue throughout Q4 and into 2021.

Acquisitions at distressed prices

Distressed M&A has risen dramatically in NA, and we’re expecting a flood of restructuring deals to hit the market in late Q3, ramping up in Q4 and even higher in Q1 ’21. Companies that were struggling before COVID-19 have been further stressed during the crisis. COVID-19-related support is starting to exhaust, probably leading liquidation or restructuring.
Although some of the larger deals get the headlines, deal flow in the middle market will continue to far exceed the upper market in the next 6-12 months. 

Expect PE to be more active than corporations, since many are in cash preservation mode and waiting in the wings for recovery. Resourceful PE firms, though, are taking the opportunity to bargain hunt and use their hefty stores of dry powder.

Valuations were at all-time highs before COVID-19. Now, buyers and sellers have to reassess valuations mid-stream due to disrupted inventory levels and supply chains. Globally speaking, determining asset value and projecting cash flow is incredibly hard to do these days.

Going forward, dealmakers are feeling that recovery could come as about as quickly as the pandemic hit.

Assuming that interest rates will remain low and a vaccine is developed, there are many underlying fundamental strengths to the economy that will bring buyers and sellers back to the table.

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.

Stay IN the know

Sign up for our newsletter for must-read market analysis and thought leadership, delivered right to your inbox.