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M&A business is gaining momentum

Mergers and acquisitions are a popular strategy for more growth, even in times of crisis. A study shows that the number of deals rose significantly in the second half of 2020. The forecast for 2021: M&A deals will continue to grow.

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Although the corona pandemic put a damper on the global M&A business in early 2020, the deal volume recovered significantly in the second half of the year and grew by more than 30 percent in both the third and fourth quarters. This is the result of the "Global M&A Report 2021" by Bain & Company, for which around 300 M&A managers worldwide were surveyed.

In total, there have been more than 28,500 acquisitions worth $ 2.8 trillion in 2020. The share of scope deals, i.e. transactions with a value of more than one billion US dollars, increased to 56 percent (2019: 52 percent). According to the study, the strategic goal of these transactions was to expand the business, acquire new skills and venture into new business areas.

Scale deals in industries with disruptive change

The number of company sales shrank more than the market as a whole. The Bain advisors explain this with the economic environment during the crisis, which made it difficult to sell assets in 2020. Executives are therefore increasingly focusing on optimizing their company portfolios, because under these circumstances they see it as the better way to achieve more growth.

At the same time, the share of scale deals, which primarily aim to improve cost efficiency, fell to 44 percent last year. According to the authors of the study, this type of transaction will not lose its importance. Because especially in industries such as retail, media, telecommunications or banks, in which the corona crisis has accelerated disruptive change, such mergers and acquisitions remain important.

Mergers and acquisitions stable despite the crisis

"The robust M&A business in the midst of the Corona crisis underlines the strategic importance that mergers and acquisitions have for companies," is the assessment of Bain partner Tobias Umbeck. He assumes that the M&A business will continue to gain momentum in 2021.

Because the managers questioned were optimistic about the future in the survey. Half of those surveyed expect higher M&A activity in their industry in 2021. Around half of those surveyed also expect mergers and acquisitions to grow, although almost as many fear the uncertain economic outlook as an obstacle to M&A deals. The survey also shows that mergers and acquisitions will remain an important strategic pillar. The respondents therefore expect M&A to contribute 45 percent to their growth.

In addition, Covid-19 has increased the urgency to outsource areas that are not part of the core business in order to secure immediate liquidity, refocus the bandwidth or reallocate capital in faster-growing areas, according to the study.

Bringing M&A strategy into shape for 2021

With the experience from the crisis year 2020, the Bain consultants recommend:

  • Executives should align the M&A strategy with the new reality. To do this, the effects of current market developments and trends must be understood.
  • Companies should not hold on to assets that are not part of their core business for too long, but should systematically manage their portfolio and effectively integrate and sell them.
  • Anyone who invests in a better due diligence check can quickly identify weaknesses, potentials and challenges of integration
  • Current market developments require integration playbooks to be updated to provide tailored integration approaches. In particular, the chapters for the latest types of business, digital tools and insights should be revised.
  • Companies need more skills, ecosystems and tools. This needs to be built up so that teams can act faster and more effectively due to a better data situation.

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