I don’t have relevant statistics for the last year yet, but M&A seems to be quite cyclical in my industry, i.e. more M&A during periods of growth. I have often wondered by barely anybody acquires anti-cyclically as the acquisition price tends to be much lower, whereas I have seen numerous examples of acquisitions being far over-paid during robust economic times because everybody wants to be buying during these times.
I work in oil and gas and the downturn in 2020 caused M&A to be stagnant due to:
• Commodity price declines caused by a decrease in demand to the COVID-19 pandemic and Saudi-Russia price war
• Low investor sentiment due to historically poor returns on capital and a shift in focus to clean/renewable energy sources
• Limited access to capital due as banks reduce lending due to record loan losses (high number of bankruptcies in 2020) and ESG concerns
Being in the home appliances industry, I find that the government support provided in Europe has kept a lot of companies that without this help would have declined into financial distress during last spring/summer when demand shrunk significantly. This led to very few companies in distress situations available for M&A, and the well-performing companies waiting out the storm (it would have been difficult to agree on valuations in that uncertain situation). With the demand rebound in Q3, as well as some companies benefiting from the pandemic situation e.g. people buying a new coffee machine for the home office, more companies have appeared on the M&A market as they can present a positive picture of rebound. It is a mix of high quality assets and some companies with a short-term increase of sales from the pandemic – the valuations do not seem to have come down…
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