The M&A market in the COVID era: from the difficulties of 2020 to the relaunch of 2021
Market data concerning the Italian mergers and acquisitions (M&A) sector confirmed 2020 was a particularly complex year, during which impacts of the pandemic emergency were severe. The total value of acquisitions involving Italian companies was around 39 billion euros. The figure is up by 6% against the previous year (when it nearly reached 37 billion euros). However, it should be noted that this figure was influenced by some transactions, with a value of more than 1 billion euro (so-called mega-deals), such as, for example, Intesa UBI, CK Hutchinson Cellnex Telecom, Esselunga.
On the other hand, considering only transactions with targets belonging to the so-called Mid Market, the total transacted amount in 2020 was around 17.6 billion euros: a sharp decrease compared to the 23.3 billion of the previous year (24.8%) worth a 19.4% reduction in the number of achieved deals (519 deals in 2020 vs. 644 in 2019). This result was heavily influenced in part due to travel limitations on the domestic and cross-border routes that characterized the whole of 2020, and which heavily influenced the performance of companies in many business areas (e.g. retail, leisure, tourism) and part by the uncertainty climate resulting from the pandemic.
It is worth noting that, despite a positive general endurance of stock markets in 2020, (the 1st Quarter of which was characterized by a sharp decline in the indexes followed by a recovery in the rest of the year) as well as in the stock market multipliers used for the valuation of companies, some of the main players in the M&A market, such as Private Equity funds, have in many cases preferred to postpone transactions pending the better performance of businesses. Conversely, on the investments and/or acquisitions side, the same Private Equity funds have shown a certain resilience to the pandemic, completing around 117 buy-out operations on Italian targets in 2020, for a total value of 10 billion euros (against 122 transactions for 8.4 billion in 2019), confirming their crucial role in the consolidation and development of companies in Italy. The behaviour of Private Equity funds in 2020 active on the acquisition side and more prudent on the disposal side is representative of what is considered to be one of the most significant effects of the pandemic on the M&A market: the transition from a seller oriented market (which until the end of 2019 was characterized by strong liquidity, access to credit at very favourable conditions, high valuation levels, etc.), to a more buyer-oriented market.
The negative trends that characterized the Italian M&A market in 2020 also occurred on a global level, especially in the March to June period. In the second half of 2020, the M&A operations announced globally showed a significant recovery, making it possible to achieve a recovery both in terms of the number of operations (3% overall compared to 2019) and in terms of their value (9% overall compared to 2019).
A case of particular resilience was the performance of the Terra Alliance network of investment banks operating on a global scale, which in 2020 completed 101 transactions for a total value worth over 8 billion dollars, a better result compared to 2019, in both the pharmaceutical and telecommunications sector in 2020 (markets that proved to be more resilient in the COVID scenario) thanks to its ability to anticipate trends and market biases. Sella Corporate & Investment Banking is the founder and also a member of the Terra Alliance Steering Committee.
In light of the measures implemented by institutions at a global level, which already had a positive impact on the performance of the M&A market in the second half of 2020 (both in terms of the number of deals and turnover), it is believed that 2021 could represent a year of growth and relaunch for M&A activities.
In particular, it is believed that the following factors could foster this growth:
- The application of European policies and Directives (primarily the Recovery Plan) aimed at encouraging the development and recovery of the Member States' economy;
- At a national level, the support that will be provided by the public sector and institutional investors to companies (for example the instrument called "Patrimonio Destinato" managed by CDP, aimed at supporting and relaunching the economic and production system);
- The continuation of a period of low-interest rates, which will favour access to credit;
- The expected recovery of GDP estimated at approximately 5.0% 5.5% (rebound after the negative peak of 2020);
- The considerable liquidity of financial investors (Private Equity funds), which must be invested in the medium term. This so-called dry powder liquidity amounted to almost 2,000 billion dollars worldwide at the end of 2020, more than double The figure recorded at the end of 2015;
- The acceleration of the ongoing consolidation in some market segments, in which large industrial operators propose themselves as aggregators;
- The growing age of business leaders (Italian peculiarity, about 54% of Italian family businesses are led by leaders over the age of 60), which also due to the effects of the pandemic, will give rise to an acceleration of generational handover.
In this market context, the Sella group is ready to assist companies and entrepreneurs in the achievement of their strategic transformation and growth projects with its offer of services, consulting and integrated products of corporate and investment banking, private and corporate banking, and by supporting them in proactively facing the challenges of the ongoing disruption.
