2021 Outlook: Why we think M&A will soar this year
With the one-year anniversary of the beginning of the first UK lockdown behind us, it offers an opportunity to reflect on the year gone by for businesses and consumers alike.
With the one-year anniversary of the beginning of the first UK lockdown behind us, it offers an opportunity to reflect on the year gone by for businesses and consumers alike. While there’s no doubt that the last 12 months have been challenging for businesses in the UK and across the globe, however, the Mergers & Acquisitions (M&A) market – the transfer of share ownership between businesses – has experienced significant growth in several areas.
Key trends within the M&A market have proven its resilience and while 2020 was a year of unpredictable firsts, it has also shown us glimpses of what to expect for the M&A market in 2021.
In the latter half of 2020, global M&A activity rose by 88%, thus becoming the strongest second half on record, with the number of acquisitions in October and November 2020 exceeding the peak number of deals delivered during 2019, and overall deal values increasing on average.
With much optimism to be taken from the closing stages of 2020, what could be in store for the remainder of 2021? In short, we believe this momentum is likely to continue.
The first quarter of 2021 has seen a total of 87 deals completed across our Group from January to March – equating to an increase of more than 75% when comparing the same period in 2020, supported by a 48% growth in the number of expressions of interest in companies mandated by KBS Corporate over the opening two months of the year. This astonishing rise is further evidence of the surge in M&A activity shifting from last year into 2021 – despite the ongoing challenges presented by the COVID-19 pandemic. This growth in M&A activity could be attributed to companies reshaping in 2020, to become more robust in response to the pandemic – a trend that is predicted to continue into 2021.
Another trend attributing towards the rise in M&A activity in 2021 is the increase of companies bolstering their market position via acquisitions motivated by distress sales – in which a company requires to sell its assets as a matter of urgency. Consequently, it’s expected that we will see a continued rise in acquisitions within sectors that have been impacted by repeated lockdowns such as transport, retail, and leisure. For example, within the retail sector, we have seen both Next and ASOS bidding for Topshop, and online fashion giant Boohoo’s multiple acquisitions including Debenhams, Dorothy Perkins, Burton, and Wallis at the start of 2021 alone. There’s no surprise that online retailers have opted to strengthen their market position by acquiring high-street brands, with the pandemic forcing attention on online consumerism over traditional shopping habits.
In addition, online fashion retailers aren’t the only companies that are actively repositioning through acquisitions; UK-based e-commerce retailer, The Hut Group, spent more than £300m on acquisitions, as they seek further growth.
Finally, another key driving force behind the stability of the M&A market in 2021 was the welcomed arrival of the UK’s vaccination programme. Capital Economics has forecasted that the continued rollout of the programme will strengthen consumer confidence, which in turn will lead to market confidence increasing, thus causing a positive effect on the M&A market.
Further good news was presented to would-be exiting shareholders in the form of the Chancellor, Rishi Sunak’s, latest budget, in which it was revealed that Capital Gains Tax – the profit made on the sale of shares or assets – would remain unaltered, and Business Asset Disposal Relief (BADR), which allows an outgoing shareholder to pay as little as 10% tax on the first £1 million of gains, has remained in place for now. It was previously anticipated that BADR would be abolished, and the rate of Capital gains Tax would be increased to recoup some of the growing costs that the pandemic has brought upon the UK, however the latest developments mean that both policies will remain unchanged for now, allowing outgoing shareholders to continue to maximise the value they receive from a sale.
Undoubtedly, the M&A market is still very healthy despite a challenging 2020. The last 12 months have allowed companies to regroup and revise their M&A strategy, enabling them to increase M&A budgets and complete higher value deals. At KBS Corporate, we have already seen high levels of market interest and completed deals during the first quarter of the year, and we anticipate that the remainder of 2021 will only prove even more prosperous for our clients as the future gets brighter and brighter.