An Insight into: Mergers and Acquisitions – Part 1
“Global dealmaking set to break records after frenzied summer” reported the FT in early September and, while Foreign Secretaries languished on Cretan beaches, M&A professionals across the country were at their desks negotiating and closing deals.
So, what’s fuelling the current boom in activity and will it last?
Cash is king
Vast sums of cash have been raised or stockpiled and need to be deployed. According to the Bank of England the net cash holdings of UK corporates on 31 May 2021 was £109bn, up from £20bn in March 2020. Meanwhile, PE firms across the world have an estimated US$2.8 trillion in dry powder ready to be invested, and while they have been primarily focused on stabilising existing portfolios since Spring 2020, the shackles are now off, and intense competition exists among PE firms to secure prize assets.
The COVID-19 pandemic has proved once again that “size matters”. Scale helps businesses survive unexpected market upheavals and disruption to cash flows. Corporates remain committed to strengthening their market positions and further investing towards scaling-up. Consolidation is likely to continue in the months ahead, especially in industries where business models have been challenged by the pandemic.
Tech leads the way
M&A has proven to be instrumental in helping companies quickly evolve and add critical new capabilities, particularly in technology and digital, which have become strategic imperatives for many businesses in the current environment. Acquirers are eager to bring these capabilities in-house and shift their focus from cost synergies to expanding digital capabilities to help them survive, exploit competitive advantage and meet evolving consumer needs.
M&A activity will continue to be robust despite economic uncertainty. It offers one of the fastest routes for organisations to grow in the current environment, stay competitive, and add critical new capabilities. And for sellers, with one eye always on potential tax rises, the time could be ripe to cash in.