While M&A activity had fits and starts in ’20; indicators point to increased deal flow in ’21.

On January 27, the Association for Corporate Growth (ACG) held its Winter Summit, a virtual one-day event focused on the trends and outlook for middle-market mergers and acquisitions. The first half of the event consisted of round-table format presentations with industry professionals while the second half was dedicated to networking. Below is our summary and key takeaways gleaned from the round-table discussions.

M&A activity in 2020 ebbed and flowed, but finished strong amidst unprecedented change.

As with every other area of life, 2020 was a weird year in the world of M&A. The market started with continued strength, dropped off a cliff in 2Q, and then came screaming back in the second half. Our comments below focus on the positive changes adapted by industry professionals that saved 2020, and should propel deal activity going forward.

  • Mass adoption of virtual work. After initial growing pains, the widespread acceptance of video conferencing as a means of conducting business became a saving grace. No more driving to lunches, flying to meetings, getting delayed, and other time-wasters. Scheduling became more streamlined. Meetings started happening sooner. One panelist mentioned that confidentiality has improved for business owners because frequent, deal-related travel sometimes raised eyebrows amongst keen employees.
  • Increased efficiencies and a shorter deal process. Investment bankers commented how they gained efficiencies by eliminating travel logistics, conducting drone-led site tours, and hosting virtual client and buyer meetings. By proactively applying the efficiency-improving technologies everyone was forced to adopt during the crisis, the industry can condense the deal timeline—which means more deals get done, and more value for all involved in the M&A process.
  • A hybrid model will likely triumph. While virtual work and related technologies undoubtedly add efficiency, there is no denying the need for in-person rapport building in what has long been a high-touch business. Along those lines, one panelist said that they are seeing a rise in background checks because the lack of “face-time” is not allowing trust to build. Dealmakers are now focused on finding the optimal mix of virtual and in-person meetings to facilitate faster deal times while preserving enough of the “humanness” in the process.

2021 is positioned for a banner year due to the convergence of multiple trends.

Overall M&A activity in 2021 should pick up where 2020 left off. There is widespread acceptance that we are still in a hot deal environment. The consensus rests in a convergence of continued market strength paired with recent catalysts. While 2021 is expected to be particularly hot, the momentum should carry near-term. Below are a few of the driving forces:

  • The uncertainty created by Covid is accelerating selling conversations with business owners
  • Expectations of higher corporate and capital gains tax rates are pulling forward the supply of businesses for sale (all advisors are discussing taxes, not just M&A advisors)
  • High valuation multiples are attracting more entrepreneurial and private equity sellers
  • Investment bankers are citing record backlogs of companies for sale
  • This increased supply is occurring alongside unprecedented amounts of capital on the sidelines
  • Still low-interest rates are attracting more capital

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