Will the merger and acquisition market break records in 2021?

At the beginning of the year, we wrote in one of our blogs that 2021 would be a good year to sell the company. The figures for the first half of the year very much confirm this.


Market to € 4000 billion in 8 months

The figures recently presented by Refinitiv show that the assumption that 2021 would be a good merger and acquisition year have already been fulfilled. The merger and acquisition market is heading toward the €4000 billion transaction value worldwide over the first eight months. In particular, a number of large international transactions were announced during the summer.

There are a number of notable transactions in the global market: NVIDIA’s acquisition of Arm Holdings creating a global player in Artificial Intelligence. This transaction alone involves some €34 billion. A second example is the acquisition by Zoom video-communication of Five9 for €12.5 billion.

But the merger and acquisition market in the Netherlands is also gaining considerable momentum. Over the first half of the year, 362 transactions were announced compared to 308 in the first half in 2020.

Examples of the somewhat larger transactions are the sale of T-Mobile to two venture capital parties, British Apax Partners and American Warburg Pincus. Another example is DSM’s sale of its resins and functional materials to an industry peer and the announced merger of Talpa and RTL.

Market growth is often caused by multiple factors. In 2021, these all seem to coincide.


Emotional factor, the return of confidence in the economy

Part of the market’s recovery is due to the return of confidence in the economy and the recovery of the markets after the covid crisis. This gives a catch-up effect to the number of mergers and acquisitions that were previously delayed. We see this especially in the last few months. But this is not the main factor of growth.  More importantly, the corona period has also had other effects especially in the SME market. Entrepreneurs have become more aware of the vulnerability of the business and the organization because of the past period.

Also, in recent years it has been “all hands on deck” and entrepreneurship has taken a lot of energy. As a result, owners are more willing to consider selling the business. They want to secure some or all of their assets. This leaves them more time for other important things in life that have become more important due to the covid crisis. This is also evident from a recent survey in the U.S. by private wealth firm Clarfeld at https://bit.ly/3kgbYGb.


Economic drivers

The changing economic situation revealed several new vulnerabilities and challenges. Perhaps the most important is distribution. The recent period showed that dependence on a complex logistics chain creates increased risk. To mitigate these risks, there is a great need for sourcing in one’s own region instead of just-in-time deliveries from various continents. Companies are literally shortening the chain by looking for reliable suppliers.  Close to home, but also in the classic sense of the word by outsourcing less and thus vertically integrating also through acquisitions.

Price increases of raw materials and transport and limited availability of personnel are important developments. But also digitalization, remote working and its facilitation, makes companies revise business models. All this has a positive effect on the merger and acquisition market.


New market order through greater scale

In addition, a traditional economic driver of the M&A market has returned and that is “scale.  Driven by increasing challenges and increased risks, consolidation is taking place in various sectors. Once the consolidation is underway, a new market order emerges and other parties in the sector cannot be left behind. The sale of the Deen supermarkets to Ahold, Vomar, and DirkDeka and the merger between Coop and Plus are good examples.


Private equity firms fuel the market

The big driver of many transactions continues to be private equity firms.

They were initially concerned about developments in their own portfolios in 2020. Depending on the composition of the portfolio and the sectors in which they operated, losses remained limited. Indeed, many portfolio companies experienced strong growth and this stimulated the acquisition drive.

The low interest rate environment ensured that even more capital flowed to private equity funds. They therefore have at their disposal well-filled funds to be invested over a limited number of years. In addition, the low interest rates also ensure that acquisitions can be financed relatively cheaply.  With large teams able to process transactions and driven by low interest rates, private equity currently has tremendous acquisition power. CMS Europe’s 2022 merger and acquisition outlook survey shows that 71% of respondents agree that financial buyers are now in a better position to take advantage of the opportunities created by covid-19.


All signs on green

After a decline in 2020, corporate valuations are on the rise again. The main cause is again very low interest rates and high demand. See also our blog: https://www.cliftonfinance.com/markt-gunstig-om-bedrijf-te-verkopen/

Various market surveys also show that multiples are rising, and that may again win over the still doubtful shareholder.

So for now all signs are green. We are getting used to the constantly rising share prices and announcements of yet another merger. Our expectation is that the prelude to 2022 is good and that this trend can be continued for the time being.


We can help you

Are you considering selling the company and waiting for the right time? Are you perhaps considering transferring the business to management or the next generation in the family? We can advise you on the marketability of your business. Especially in these market conditions, as the market seems favorable to sell the company in 2022. We advise you on the possible valuation or what you can do to make your business sale-ready.

By |2022-10-21T09:32:23+01:00September 17th, 2021|Blog|Comments Off on Will the merger and acquisition market break records in 2021?

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