Guest Commentator: Matthew L. Lang CFP, First Vice President, Private Wealth Advisor, UBS Financial Services Inc., @UBS

What kind of impact has COVID-19 had on mergers and acquisitions (M&A) ?

The years directly preceding 2020 consisted of strong M&A activity and premium valuations as a result of a demographic shift led by Baby Boomer business owners entering retirement and strong demand for high quality middle market businesses from private equity and strategic buyers looking to deploy seemingly bountiful amounts of capital, oftentimes referred to as “dry powder.”

2020 Review
Activity started out elevated before a significant reduction with the onset of the pandemic. Businesses looked to shore up capital and entered survival mode for the stormy weather ahead. But glimmers of sunlight did eventually appear for industries such as technology and health care, which in general proved to be the least negatively impacted by COVID-19.

For strong businesses that were positively impacted by a changing world, opportunities arose for deal-making. In the end, US M&A activity decreased by more than 20%, according to Mergermarket, but with two very different stories as activity in the second half of the year saw an increase of more than 200% vis-à-vis the first six months. GF Data, which tracks private equity-sponsored M&A transactions between $10 and $250m, saw 170 transactions in 2H20, a 26% year over year increase.

“Early on, businesses were focused on maintaining liquidity, operations, and safety. However, as volatility subsided with time, the M&A and IPO market rebounded. With public market valuations at near all-time highs and significant liquidity in the system, many companies opportunistically sought to raise capital or sell,” says Alan Felder, from UBS’s OneBank Partnership, an initiative between UBS Global Wealth Management and UBS Investment Bank, and Americas Head of both Private Financing Markets and Real Estate, Lodging & Leisure for UBS Investment Bank.

2021 Outlook
Will the momentum continue? According to Felder, there are several tailwinds that should point to robust activity this year:

  • Low interest rates and government stimulus
  • Record levels of dry powder from private and public markets, including SPACs
  • Pent-up supply and demand from both sellers and buyers
  • The feeling that the worst may be behind us as it relates to the pandemic
  • Possibly speeding up exit planning due to uncertainty related to capital gains and corporate taxes

UBS believes that corporates and sponsors will continue to utilize M&A to evolve and drive growth as the economy recovers, with value being placed on digital, technology-enabled and disruptive businesses that are well-positioned in the post-COVID world.

“Companies that performed well over the COVID period are trading at attractive valuation levels and are in demand by buyers. We continue to focus our practice on advising clients on the strategic alternatives available to them. We expect robust M&A and capital markets activity to continue and are focused on helping our clients create long-term value,” says Felder.

UBS Financial Services Inc. is a member of the Chamber’s  Middle Market Action Team (MMAT), a consortium of leaders driving rapid growth in companies with annual revenues between $10M & $1B via targeted programs and strategies.

Upcoming Middle Market Workshop

[Virtual] Mergers & Acquisitions: Crucial Insights for Middle Market Growth
Monday, March 22, 2021 | 1:00 – 2:00 p.m. | Held via Zoom

Join this workshop led by business experts who will discuss mergers and acquisitions as a critical strategy for growth, provide insight on what to anticipate throughout the transaction process, and how professional advice and planning is crucial for M&A success.