M&A Trends in the Opportunity Economy
- The M&A market is at a record pace in 2021, with a variety of factors (a thriving stock market, available debt, vaccines fueling a pandemic recovery, low interest rates, etc.) driving this growth.
- Representations and warranties insurance is increasingly important, and allows buyers and sellers to focus on bigger-picture M&A issues.
- The renewed federal push on antitrust compliance and a tight talent market are potential challenges, but the M&A market looks to remain hot going into 2022.
While the COVID-19 pandemic remains a public health and economic concern, companies are adapting and adjusting, finding new and better ways to do business moving forward. Womble Bond Dickinson is taking a comprehensive look at this new Opportunity Economy from a wide range of viewpoints. In the latest installment of the Opportunity Economy series, D. Scott Anderson and Dean Rutley discussed the ongoing M&A boom and the factors they see impacting corporate transactions in the near future. They recently spoke to Womble Bond Dickinson attorney Mark Henriques on an episode of the “In-house Roundhouse” podcast, and the article below is based on that conversation.
No doubt about it—mergers and acquisitions are taking place at a feverish pace, going back to the second half of 2020. A recent Refinitiv report found that the U.S. has reported $2.14 trillion in M&A activity already in 2021, and the year is on pace to be the biggest in history. According to a S&P Global Market's Intelligence report, Q2 2021 was the third straight quarter where total global M&A value surpassed $1 trillion—the first time this has ever happened in three consecutive quarters.
Womble Bond Dickinson polled its LinkedIn contacts and asked what, in their opinion, is driving this boom, with the choices being: 1. Tax changes; 2. Increased economic activity; 3. Regulatory structure changes; or 4. Other factors. The second choice—increased overall activity—was the overwhelming winner.
“Over the course of my 35 years, I’ve never seen anything like this,” Rutley said. “I personally thought COVID in March and April of 2020 would be a huge dampener on M&A activity, but unlike previous events, like the economic crisis in 2008-2009, the hit to M&A by COVID proved to be temporary. Instead of seeing a decline in my M&A practice, I’ve had my largest year of M&A deal volume and deal value in my entire 35-year career. It’s not unusual for my teams to currently have 9-12 deals going at once.”
And while he agrees that increased economic activity is the primary reason, he said that category is broad. Drilling down a bit deeper, Rutley points to a healthy stock market, the availability of cheap debt, low interest rates, and upbeat forecasts in such sectors as technology, healthcare and financial services.
The COVID-19 pandemic absolutely slowed down initially what had been a robust corporate transactions market in early 2020. But Rutley and Anderson both said the pandemic forced buyers and sellers to adapt—and they learned that some of these changes actually were for the better.
“Rapid digitalization is underpinning the M&A recovery and enabling the white-hot market we’re seeing today,” Rutley said. “Stakeholders are adapting to virtual due diligence and deal-closing. The pandemic forced this, but we found we could do deals faster and more easily.”
“Activity has been super-heavy. I was expecting a more prolonged slowdown, but I would characterize it more as a hiccup. Once people got comfortable with virtual connections, the volume picked right back up,” Anderson said.