Drivers
As the post-pandemic market starts to take shape, the global M&A has hit its record value in H1 2021. According to the research conducted by EY, global mergers and acquisition deals worth over $2.6 trillion were closed in the last six months up from $926 billion the year-on-year record. The positive growth of M&A is being driven by a healthy stock market, affordable financing options, and optimistic industry executives.
Most of the mergers and acquisition deals were closed in North America. The region recorded M&A deals worth $1.4 trillion which is almost twice the average value record of the last five years of $784 billion before the COVID-19 pandemic struck in 2020. The second leading region is the Asia-Pacific which recorded M&A deals worth $446 billion. M&A deals in Europe came third with mergers and acquisition transactions worth $412 billion.
In H2 2021, the M&A deal activity in Europe also increased to close 4,065 deals worth $428.3 billion in value. Some of the factors that have contributed to this unprecedented increase in European M&A deal activities include; current conducive fiscal-monetary policy, robust capital markets, and quick economic recovery after the Coronavirus crisis.
Although there were only 479 M&A deals announced, they were grander billion-dollar deals and they have impacted a lot to the success that we are witnessing in the industry today. Although most countries around the globe restricted the free movement of people from one country to another, we have seen a steady increase in cross-border transactions taking place.
As the global economy recovers, there is every possible sign that the labor market is tightening and we expect that the rate of inflation is likely to increase. Therefore, we are likely to see a hurdle in M&A deal-making specifically in sectors where the cost of labor is a huge factor.
Most investors are settling the mega M&A deals using stock financing either fully or partially. For instance, we witnessed the purchase of Blackstone’s data provider company Refinitiv through stock financing by the London Stock Exchange for $14.8 billion-plus the assumption of $12.2 billion in debt.
The already announced global M&A deals are steaming up and growing by the day. The recent M&A trends indicate that the most sought-after sectors that are driving the global M&A boom in 2021 include; healthcare, financial services, energy, news media, and technology.
In this guide, we shall expound more on what exactly is happening in these sectors and how they are stimulating the rapid growth of global M&A deal activities.
1. Healthcare M&A Activity
There were 593 healthcare M&A deals in H2 2021 worth $113.2 billion. The majority of the mega M&A deals were in some healthcare subsectors, especially in the pharmaceuticals and biotechnology sectors. The increased demand in these subsectors can be attributed to the COVID-19 pandemic and the growing global need for vaccines.
There has been a lot of disruption in the healthcare industry due to the alteration of global supply chains as well as the need to produce vaccines with high efficacy within a record time so as to save more lives. We have seen an upward trajectory of artificial intelligence and telemedicine.
Home-based healthcare models are also growing as an alternative option to the challenges that come with nursing homes and long-term care centers, especially during a pandemic crisis. There is a segment of the population that has embraced this model and moving forward, we are likely to see more M&A deals in this area.
We are also seeing increased activities of the Contract research organization (CRO) as the need for drug development gears up. Clinical trials for various drugs are expanding every year at both international and local levels. Currently, over 50% of the global pharmaceutical market share is held by the top 10 CROs and any mega M&A deal is capable of sending shock waves in the entire industry.
For instance, some of the recent M&A transaction deals that have taken place include; Thermo Fisher Scientific (NYSE: TMO) buying Pharmaceutical Product Development (NASDAQ: PP) for $17.4 billion, EQT and Goldman Sach’s Merchant Banking Division bought Paraxel (Pamplona Capital) for $8.5 billion, and Icon (NASDAQ: ICLR) bough PRA Health Sciences for $12.0 billion.
Before the COVID-19 pandemic crisis, there was a strong ecosystem that supported hospital and health system M&A. However, after the pandemic, we are likely to see a decline in M&A deals relating to hospitals and healthcare systems. This is due to the latest executive order that was issued by the US federal government setting new regulations on hospitals and healthcare systems mergers and acquisitions.
2. Financial Services M&A Activity
In H2 2021, there was a 5.5% year-on-year increase in financial services M&A activities. So far, there is a total of 458 M&A deals that have been successfully closed totaling $100.9 billion. Scale acquisition has been one of the main driving forces of increased M&A financial services in the second quarter of 2021.
The US-based PNC Financial Services Group (NYSE: PNC) acquired BBVA USA Bancshares Inc. for $11.6 billion. The acquisition has resulted in the creation of the 5th largest commercial banking organization. Another example is the merger of RSA Insurance Group (a UK-based insurance company) with Canada-based insurance company Intact Financial (TSE: IFC) for $10.1 billion.
In the US, there were more banking consolidation M&A activities in the second quarter of 2021 with regional banks accounting for more than half of all the M&A banking activities. Some of the recent bank consolidations include the merger of First Bank of Linden and Alabama One Credit Union, FNS Bancshares and Bancorp South, and Standard Bank merger with Dollar Bank. There are many favorable factors that are enabling banking consolidation including historic low-interest rates and increased interest in banking shares.
In the second quarter of 2021, there has been an increase in sponsor activity in the insurance broker space constituting over 70% of all the insurance M&A transactions closed. The recent M&A deal is the proposed sponsor merger deal of AON (NYSE: AON) and Willis Towers (NASDAQ: WLTW). The growth catalyst of insurance brokers can be attributed to relatively stable cash flows and the subsector’s deep fragmentations.
3. Information Technology M&A Activity
The technology sector has continued to play a significant role in the growth of global M&A activity. In H2 2021, about 20.8% of all the M&A deals came from the tech sector making it one of the most robust sectors that will continue to thrive even in a post-COVID-19 era. In EU member states, there is a proposal for the Digital Markets Act that could see changes in the tech landscape in the region as more restrictions and scrutiny of tech M&A deals will be emphasized. In the coming years, we are going to see tech giants being monitored and highly regulated on how they carry out acquisitions of smaller European startups.
In China, the Chinese market regulators declined a proposed gaming merger between Huya and DouYu that was worth $5.3 billion. Both Huya and DouYu are the two top videogames streaming sites in China. The regulators declined the proposed gaming merger on antitrust grounds since the merger would boost the Tencent (the parent company) online game operations monopoly in China from the current 40% to over 70% thus, clouding out other startups.
The need to monitor complex enterprise systems has also given an edge to the demand for enterprise software. Workforce digitization is growing at a high rate globally and as a result, we are seeing large enterprise vendors acquiring small software startups. The move is to help large enterprise vendors strengthen their applications so that they can provide modern deep system monitoring features. A recent tech M&A deal was when ServiceNow acquired Lightstep Software Company, and IBM acquiring Insta and Turbonomic in an effort to automate the firm's IT operations.
4. Energy Sector M&A Activity
After hitting rock-bottom in 2020, the energy sector M&A is starting to recover as prices for oil and gas starts to stabilize. In H2 2021, a total of 186 deals were closed totaling $55.1 billion. If the recent prices of oil and gas are maintained at profitable margins by OPEC, we are going to see an increase in M&A deals.
Many investors in the energy sector are now focusing on investing in assets that will provide them with a steady return on investment while at the same time guaranteeing lower risks. Clean energy and a promising future with a high rate of returns are attracting more M&A deals, especially in Latin America. Investors in environmental, social, and governance (ESG) related acquisition are in high gear to increase sustainable energy footprints and we expect to see an increase in demand for pure-play oil and gas production assets.
5. News Media M&A Activity
In addition, new media acquisitions have also played a great role in driving global M&A deals. Industry giants in the media and entertainment sectors are looking for ways of attracting and retaining clients. They are buying small streaming media start-ups in a bid to remain competitive and this is what is driving some of the biggest M&A deals that we have seen in 2021. By H2 2021, the sector had recorded M&A deals worth $157 billion which is higher compared to the average of the five pre-pandemic years of $300 billion. The merger between AT&T-owned Warner Media and Discovery (Lifestyle TV network) increased the enterprise value to more than $120 billion.