Global M&A Activity Soars in Record-Breaking First Quarter
By David A. Stagliano, CPA, Partner, Transaction Advisory Services
It came as no real surprise that mergers and acquisitions (M&A) showed little activity across the globe in the greater part of 2020, due to the COVID-19 pandemic. Now, after a record-breaking surge in deals for the first quarter of 2021, alongside an economy attempting to bounce back from the worst of its pandemic-related difficulties, M&A deal-makers seem to be anticipating an eventful year.
Despite there being only a slight increase in the number of deals overall (about 6%), the total value of deals for the quarter, completed and pending, reached an awe-inspiring $1.3 trillion, up 93% from last year, according to global data provided by Refinitiv. It is the highest-volume first quarter on record and the second-highest quarter in the history of M&A.
Activity in the United States was the primary driver of the surge, accounting for around half of the burst of activity and $654.1 billion in total value, up 160% year on year from 2020. However, the current uptrend should still be considered a global event, as the Asia Pacific region (excluding Japan) and Europe also observed a noteworthy spike, the former up 44.9% at $206.5 billion, and the latter up 24.5% at $277.3 billion.
Cross-border activity also shot up significantly this quarter, totaling more than $65 billion among just three of the major deals, the most notable of which was General Electric’s sale of its aircraft leasing company to Ireland’s AerCap Holdings NV.
There remains some speculation around the drivers. Various factors have undeniably had an impact.
If it can be said that last year’s decline in M&A activity, particularly in the first two quarters, was largely due to the uncertainty surrounding the early stages of COVID-19, it can also be said that this resurgence in activity can be attributed at some level to the current state of the virus. Between widespread vaccine distribution and an altogether bright economic forecast related to decreased restrictions on businesses and travel, there is good reason to believe that the global pandemic will continue to positively influence M&A activity in 2021.
The Biden Administration
With $2 trillion of economic stimulus, low interest rates, and largely positive trends within the stock market, the new presidential administration in the United States has undoubtedly played some part in the recent surge. Whether the political environment will remain conducive to increased M&A throughout the rest of the year, however, is unclear. Any administrative actions, including regulatory moves and tax rate increases targeting investors, could end up having a significant impact on M&A activity going forward.
At the start of 2020, pre-pandemic, private equity investors controlled $1.5 trillion in capital. Immediately following the emergence of COVID-19, economic uncertainty reached an historic high, bringing any number of potential deals to an indefinite halt. But while those potential deals might have disappeared, the capital did not, and investors have been sitting on incredibly large sums of cash just waiting for a safe time to resume trading. Because private equity investors are responsible for a significant portion of M&A activity, what we are seeing now could very well be the result of all this pent-up capital finally being deployed.
The SPAC Boom
Often referred to as “blank check companies,” special purpose acquisition companies (SPACs) have stormed onto the M&A scene in record numbers, totaling $172.3 billion in deals this first quarter, up 3000% from last year. In simple terms, a SPAC is a corporation with access to an abundance of capital, listed on a stock exchange, with the purpose of merging with a target business. It should be noted that while SPAC activity is currently slowing down in light of new guidance from the SEC related to accounting procedures surrounding warrants, investors will likely resume and move forward with deals once some clarity surfaces around compliance requirements.
Is This Level of Activity Sustainable?
This is the question on everyone’s mind in the wake of the M&A resurgence, and unfortunately there are no definitive answers at this point. What the historic first quarter does tell us, however, is that M&A deals have been taking place in a relatively friendly economic and regulatory environment, which, barring the emergence of harsher regulations or an unforeseen blow to the global economy, should be conducive to sustained activity.