Why M&As are back with a bang

The release of pent-up demand for corporate consolidation has resulted in an acquisition spree that, experts believe, has the potential to last well into next year


The Covid crisis has been one of the most disruptive periods for business in living memory. But where there is disruption there is opportunity, which has taken the form of a corporate consolidation boom. Research by Refinitiv has found that global M&A activity in the first six months of 2021 was worth £2tn – the highest half-yearly total the company has ever recorded.

David Dubner, head of M&A structuring at Goldman Sachs, has called this phenomenon a “super-bloom”. He reports that corporate boards around the world have been taking the chance to reassess their firms’ strategic priorities while “emerging positively from what is, hopefully, a once-in-a-generation pandemic”.

Helen James, corporate finance partner at London chartered accountancy firm HW Fisher, has seen many M&A deals involving businesses worth between £10m and £50m in recent months. She reports that 2021 is shaping up to be “possibly the busiest year for acquisitions I’ve ever seen – and I’ve been doing this for 15 years”. 

James categorises the acquisition targets she has seen into two groups: companies that have thrived during the pandemic, representing particularly attractive investment opportunities as they seek to kick on and capitalise on their success; and those that have struggled to cope during the crisis and could therefore be snapped up at bargain-basement prices. 

Prospective buyers with plenty of cash to splash tend to be focused more on the value that companies in the former group can offer, she adds.

A backlog of deals

Some experts attribute the upsurge in M&A activity in recent months to the fact that many deals had to be put on hold during the depths of the Covid crisis last year. The UK’s withdrawal from the EU, which occurred in January 2020, may also have had a dampening effect, prompting potential buyers to wait and see what impact, if any, Brexit would have on their markets before committing themselves to high-value purchases. Global brand consultancy Siegel+Gale noted that there were only 674 transactions over the value of US$100 million during the year according to research from Willis Towers Watson’s Quarterly Deal Performance Monitor – the lowest total seen since the global financial crisis of 2007-08.

There is still plenty of money sloshing about a corporate world that had, in the years leading up to the pandemic, been unusually settled, according to James, who says that businesses at last feel able to invest this capital and make it work harder. 

Monica Barton, a partner in the London office of international law firm Winston & Strawn, agrees that companies have been making up for the time they lost at the start of 2020. “The backlog of transactions we’re seeing in the market at the moment is just phenomenal,” she reports.

But the release of pent-up demand is not the only factor that’s been driving 2021’s consolidation craze, according to David Filmer, a partner in the corporate team at Lancashire-based law firm Forbes Solicitors. 

“The pandemic has been contributing to the high levels of M&A activity, but this isn’t simply down to a backlog of delayed deals,” he argues. “It’s also because the pandemic has caused business owners to rethink their priorities and reflect more on their lives. In some cases, hard-working entrepreneurs are deciding to take their foot off the gas. This is prompting business sales that might otherwise not have happened for another three years.”

Filmer believes it’s “reasonable to think that this level of M&A activity will continue in the next six to nine months”. 

James agrees that the high volume and value of transactions will be sustained into 2022, although it’s likely that the pace will diminish significantly after the backlog has eased. 

The Covid crisis “has actually given business leaders a better perspective”, she argues, observing that many leaders of firms that have come through the pandemic relatively unscathed “are saying to themselves: ‘We survived that; we can survive the next thing as well.’ I think it’s made people a bit more confident in the ability of businesses generally to be resilient and adaptable.”

Taking advantage of the boom times

Barton predicts that there will be a correction in the M&A market at some point next year. She notes that a lot of businesses in the UK “are being funded by government loans. At some point, that debt terms out. Then it will be interesting to see what happens to those companies.”

By contrast, those firms that have been trading strongly without state support during such a difficult period for commerce in general have shown their value to potential buyers and greatly increased their chances of attracting favourable takeover bids, according to James.

“Because they have managed to survive the pandemic, companies that may not have been on the radar before the Covid crisis have put themselves on it,” she says, noting that many leadership teams have learnt how adaptable they need to be – and how quick decision-making is a key attribute of a well-run business. 

“The same principles apply in an M&A transaction,” James adds. “Things are going to look slightly different in that business as a result, but everyone needs to be on board with that idea – and everyone must also be ready to change themselves.”