• Olivier Lacour Royre D'Autriche, FCCA, Partner |
3 min read

A marked upturn in European dealmaking over recent months, as well as progress made on vaccine distribution, have given dealmakers cause for optimism in 2021

As we look ahead, a combination of mid-market resurgence, technology and consolidation driven acquisitions, and private equity (PE) firms’ pressing need to deploy dry powder are all expected to fuel M&A activity this year.

M&A market overview

Despite a strong start in January and February 2020, the M&A market experienced a sharp decline due to the pandemic, its uncertain consequences, and the focus on financing companies’ working capital needs. M&A activity, however, saw a rapid resurgence in July 2020, with unprecedented levels of dealmaking in the final few months of the year. According to Mergermarket, the USD 1.2 trillion in deals announced globally in Q4 2020 was the highest quarterly value since Q2 2007.

After a rather quiet Q2 in 2020, Europe’s M&A market experienced strong growth in Q3 and Q4: a total deal value of €466 billion was reached in H2 2020, representing 35.5% growth compared to H2 2019. The total deal value in 2020 reached €732 billion, representing 2.4% growth compared to 2019.

PE firms played an active role in the M&A market recovery with €179 billion spent by sponsors across 1,415 deals – the highest annual value since 2007. Despite financial complexity during the pandemic, robust fundraising moves were seen in the PE market throughout 2020, adding more potential to this year’s M&A market.

Data source: Mergermarket

M&A transactions increase despite the pandemic

As the economy continues to recover, market leaders are seeking consolidation and opportunities to strengthen their leading positions. Seeing the pandemic challenge their business models, other players are considering small or medium acquisitions, both in their own sector or in adjacent ones, to drive transformation in line with global trends:

  • technology – AI, blockchain, IoT, 5G networks, etc.
  • regulatory – data privacy and GDPR, transparency, etc.
  • social & political – ESG, sustainable finance, diversity, etc.

Don’t miss our blog for further insight into the specific set to impact Luxembourg.

PE firms and industrial companies with dry powder have already made huge progress in their research of potential targets and market dynamics ahead of FY20 results in order to be agile in their 2021 investment decisions. Tech-related assets in addition to pharma, medical and biotech assets will remain in the spotlight for PE firms.

Time to rethink corporate strategy

M&A is becoming a go-to option for businesses facing financial difficulty. Whether it’s mostly due to the effects of the pandemic, or just amplified by them, some companies are considering selling non-core assets and focusing on their main businesses. Others are homing in on activities with higher margins and greater growth potential impact. Sectors particularly impacted by the health crisis – FS, Travel & Hospitality and Energy – are expected to be subject to further consolidation.

Encouraging trends for 2021

Unpredictability and uncertainty still linger, however, over the timing and extent of the global economy’s recovery from the pandemic after new waves of infections, not to mention upcoming geopolitical and regulatory changes including Brexit, the new US presidency and climate change issues.

Due diligence is set to play an increasingly important role in M&A processes, in order to reassure buyers and sellers about the financial health and historical performance of a business, as well as pandemic-related risks

Some good news is that the combination of access to financing and the increased need to sell means the M&A pipeline for 2021 is looking healthy. The most active sectors are expected to be TMT (Technology, Media & Telecommunications), Healthcare, Energy, Consumer Products, Industrials and FS. What’s more, the pandemic has raised the question of offshoring, with experts predicting an increase in M&A deals between European countries.

KPMG expertise

At KPMG Luxembourg, a dedicated due diligence team specializing in local and cross-border transactions is ready to help you. A specific approach is needed for financial due diligence in times of pandemic and a distressed financial market so be sure to check out our tips and guidance on business deals in a COVID-19 landscape. You can also get an in-depth view here on how our deal advisory could support your M&A decisions.

This blog has been written together with Adrian Rincon Gutierrez.