Q1 M&A boom sets the pace for 2021

June 2021 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2021 Issue

Mergers and acquisitions (M&A) activity has enjoyed a strong start to the year, with the first quarter of 2021 seeing $1.16 trillion in transactions, surpassing 2018 and 2019. It makes 2021 the most active annual opening on record, according to Mergermarket’s ‘Global & Regional M&A Report 1Q21’.

Momentum built up during the latter stages of 2020 carried over into the first quarter, with the technology sector continuing to offer up deals and private equity (PE) firms remaining busy. North American activity was particularly strong. The region, led by the US, reached its highest market share in 14 years, accounting for 54.4 percent of global deal value, up from 48 percent in Q4 2020.

Special purpose acquisition company (SPAC) IPOs and business combinations were a major factor in North American dealmaking in 2020, and that continued into 2021. In Q1, there were 79 SPAC business combinations worth a combined $165bn in the US, up 25 percent by value compared to all of 2020. Q1 SPAC IPO issuance in the US also eclipsed 2020, with 298 SPAC IPOs raising $95bn, against 248 raising $83bn in all of last year. SPACs have continued to take an interest in automotive companies – in Q1 there were at least seven SPAC deals in the automotive parts and manufacturing industry in the US, the largest of which was Churchill Capital Corp IV’s $11.75bn announced business combination with electric vehicle maker Lucid Motors.

“Carrying forward the momentum of 4Q20, global merger and acquisition activity turned in a strong first quarter performance,” said Mark Druskoff, data-driven content coordinator for North America at Mergermarket. “While many themes crossed over into 2021, such as the technology sector’s dominance and the continued strength of private equity, some notable shifts did occur in terms of deal size and geographic concentration of deals.”

North America accounted for two-thirds of all IPO activity in Q1, according to Dealogic. The US saw $137.8bn worth of IPOs out of a global total of $200.9bn. Furthermore, there were 398 IPOs in the US compared to 762 worldwide. Overall, global IPO activity in Q1 reached nearly two-thirds of the value of all 2020 activity – $319.5bn on 1592 IPOs.

While North America and the Middle East saw healthy increases in dealmaking throughout Q1, all other regions lost market share. The Asia-Pacific region, excluding Japan, saw its market share decline to 14 percent, dropping from a 37.2 percent share in Q2 2020. Japan-targeted deals reached $15.5bn – the highest Q1 value since 2016 – across 113 deals, though this represented a 16.9 percent decline in deal count year-on-year.

European M&A rose by 51.4 percent year-on-year, though the opening quarter of 2021, with $291bn of announced deals, slightly lagged the bumper fourth quarter experienced in 2020, with $337bn. Most of those deals were in the UK, which saw 504 transactions worth $111bn, the largest of which was National Grid’s $20bn acquisition of Western Power Distribution, the only deal in Europe worth more than $10bn prior to the report’s publication.

Cross-border M&A in Europe remained steady in Q1. Foreign investment into the region reached $134.4bn across 359 deals, accounting for 46 percent of the total European value and 17.5 percent of the deal count. This represents a notable increase from 2020, in which 37.1 percent of the value and 16.5 percent of the deal count in Europe was generated by foreign investment. Private equity also played a significant role, with many firms buoyed by a healthy financing market, and considerable levels of available dry powder. PE firms spent $75.5bn across 459 deals in Europe during Q1, the highest quarterly value since Q2 2007 and a 21.7 percent increase on the first quarter of 2020.

Latin American deal activity fell 25 percent compared to Q4 2020, with 153 deals worth $26.9bn, down from 190 deals worth $35.7bn in the previous quarter. However, despite the decline in number of deals announced, M&A by value returned to pre-pandemic levels.

Richard Summerfield