By Rusty Wiley, CEO of Datasite
Over the last 18 months, global M&A has taken one roller coaster of a ride – dropping during the early days of the pandemic, only to soar to new highs as vaccines rolled out and restrictions eased. Strong deal activity is expected to continue in the second half of this year, though there will be new challenges and opportunities for dealmakers to consider.
In the first half of 2021, global M&A reached record levels, as $2.5 trillion in deals were announced – more than double the deal amount from the same time a year ago. New global projects on Datasite’s platform, which facilitates about 10,000 deals a year, or 20% of all global volume, were up 51% year-over-year through June. This bodes well for the remainder of the year, as these are deals are at their inception rather than announced.
This surge in activity is the result of favorable interest rates, ready access to capital, and many organizations turning to technology and combining with other companies to ensure their digital transformation. This is especially true in the Americas, where new technology, media and telecom (TMT) projects on the Datasite platform are up 80% year-over-year through July this year.
Yet, TMT isn’t the only sector seeing surging M&A. Several other sectors are seeing nearly as much activity. In some instances, new legislation is the impetus for the influx; for others, increased or changing regulations are creating new dynamics. Following are some key themes and trends US dealmakers are likely to focus on for the rest of this year.
Consumer, Infrastructure and Energy M&A Heats Up
For most of the past 18 months – and certainly during the height of Covid-19 – dealmakers opted to invest in sectors that were resilient to the pandemic, such as technology, and life sciences and healthcare. Sectors hit hardest by lockdowns, such as consumer, and travel and leisure, were considered riskier, and drew less interest, causing M&A to decline. However, as restrictions have eased and the financial picture of organizations in these sectors becomes clearer, investment and M&A are picking up. In fact, new consumer projects on Datasite’s platform are up 73% year-over-year from January through July this year.
Following approval of a $1 trillion US infrastructure bill earlier this month, M&A in traditional infrastructure areas, such as transportation and public works, telecoms, smart grids, and water, should climb, as well as the industrials and manufacturing behind those plays. For example, supporting water infrastructure also means money pouring into new pipes and the machines to create new pipes. So, big construction companies should benefit from the bill, and will likely look at roll-ups as a way to capture growth. The legislation should also spur public-private partnerships (PPP), which are a traditional private equity play. Some of this activity is already showing up on Datasite’s platform, with global new industrial, transportation and defense projects up 73% in the first seven months of this year, compared to the same time last year
Similarly, M&A activity in the energy sector is getting a boost from the Biden administration's pledge to reduce carbon emissions by at least 50% by 2030. This is driving greater investment in renewables, systems that can mitigate or adapt to climate change and grid modernization, as well as transportation and building electrification. Other sectors, such as consumer and financial services, are also likely to benefit from the push, as consumer interest in green products, and environmental, social and governance (ESG)-focused financial products continue to grow. Additionally, the US SEC is expected to issue climate risk disclosure rules by the end of 2021 to address climate-related financial risks.
Regulatory Changes on the Horizon
Climate risk disclosures aren’t the only regulatory changes that could impact US M&A. The Biden administration has proposed several antitrust measures and instructed federal agencies to increase competition. This includes going beyond the typical reviews of mergers and acquisitions that the Federal Trade Commission and Department of Justice conduct. For instance, large technology companies have come under the spotlight for buying smaller startups that might have become rivals later on. Additionally, just this month, the Federal Trade Commission refiled an antitrust case against one of the largest social media companies on the grounds that it is a monopoly.
Inflation Fears
Dealmakers are also keeping a close eye on US inflation, which has remained at a 13-year high of 5.4% for the past 12 months, ending in July. And while capital access and sources aren’t expected to dry up, this could cause some M&A valuations to drop.
Still, this won’t impact the high volume of deals and the current M&A boom that is expected to continue through the fourth quarter.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.