Global dealmakers are optimistic about the outlook for this year’s second half, spurred by a rebound in mergers and acquisitions, according to a series of polls conducted by Datasite, a SaaS-technology provider for the global M&A community, and Mergermarket, a mergers and acquisitions intelligence company.
More than 600 dealmakers polled across the Americas; Europe, the Middle East, Africa (EMEA); and Asia Pacific (APAC) between June and August said optimism and consumer confidence, ahead of restructuring, are driving the M&A market recovery.
“The results mirror what we’ve been seeing in real time on our M&A platform, which facilitates close to 10,000 deals a year,” Rusty Wiley, CEO of Datasite, said. “We started to see activity pick up in June, especially from strategic buyers, and a resurgence from the middle market, which has continued through the summer. If conditions continue to improve, the combination of new and relaunched deals, as well as a steady stream of restructurings, should drive strong deal volumes in the second half of 2020.”
Within EMEA, dealmakers across the CCE region (37%) and Benelux (53%) cited optimism and consumer confidence as the primary recovery driver, followed by restructuring (30% CCE, 27% Benelux), a government stimulus plan (17% CCE, 11% Benelux) and pent-up demand (11% CCE, 9% Benelux). In contrast, dealmakers in Italy, Portugal and Spain (44%) and the Middle East (47%) found restructuring to be the main factor driving recovery. In Italy, Portugal and Spain, this was followed by optimism/consumer confidence (31%), pent-up demand (19%) and a government stimulus plan (6%), while dealmakers in the Middle East cited a stimulus plan (32%) and optimism/consumer confidence (21%).
Similarly, APAC dealmakers differed in their market outlook. Most M&A professionals polled in SEA and India (56%) and China (45%) had a positive M&A market outlook, while dealmakers in the AZN region were more skeptical, with 46% taking a neutral stance compared with 32% who said they had a positive outlook on the market.
In the Americas, dealmakers said that both deal volume and distressed activity are on the rise. Americas respondents expect bankruptcies (38%) to be the main driver of M&A activity in the second half of 2020, followed by private equity dry powder (34%), corporate acquisitions (15%) and defensive carve-outs (13%). They also cited retail (49%), energy (26%), industrials (21%) and utilities (3%) as the sectors with the best opportunities for distressed M&A.
When asked more about distressed M&A, most Americas dealmakers said less than 5% of their portfolio was targeted toward distressed assets (36%), followed by between 20% to 50% (21%), greater than 50% (17%) and between 5% and 20% (17%), while 10% of respondents have begun to divest from distressed assets.
In EMEA, second half activity is expected to come in the form of divestitures and carve-outs. All dealmakers (31% CCE; 43% Benelux; 38% Italy, Portugal and Spain; 55% Middle East) said this type of restructuring activity would dominate over the next 24 months. However, beyond this type of restructuring, EMEA M&A professionals reflected some regional differences. In the CCE, dealmakers said liquidation (23%), debt financing (18%) and non-performing loans (NPLs) (7%) would be the next most prevalent, with 20% of those surveyed saying restructuring won’t be important. In Benelux, dealmakers expect debt financing (26%) to be the second most widespread type of restructuring activity, followed by liquidation (15%) and NPLs (13%), with 2% saying restructuring lacked importance. Dealmakers in Italy, Portugal and Spain also predicted debt financing would follow divestitures and carve-outs (34%), followed by bankruptcy/administration (19%) and NPLs (9%). Finally, in the Middle East region, dealmakers said debt financing (25%) would be the second most dominant form of M&A restructuring, with NPLs (9%), bankruptcy/administration (5%) and liquidation (5%) following. In addition, 2% of respondents said restructuring won’t be important.
This contrasts with dealmakers in APAC, who said that asset purchase/sales would dominate market activity in the next 12 months (SEA and India 40%, AZN 45%, China 40%). Additionally, like EMEA dealmakers, APAC dealmakers also reflected regional differences in what they see as the next most prominent type of M&A activity. After asset purchases/sales, dealmakers in SEA and India said that mergers (22%), bankruptcy (19%), fundraising (18%) and loan syndication would be the next most prominent transactions, while AZN dealmakers said fundraising (20%), bankruptcy (19%), mergers (9%), loan syndication (5%), and audits and IPOs (each 1%) would be the next most widespread. In China, dealmakers cited fundraising (19%), mergers (12%), bankruptcy and IPOs (each 10%), loan syndication (7%), and audits (1%) as the next type of M&A activities most likely to take place the rest of this year.
Tools that can be accessed remotely will continue to be important to dealmakers, who overwhelmingly cited the ability to complete due diligence virtually as the most important aspect of technology during the current climate. This was followed by tools that increase speed and efficiency, AI and machine learning, analytics, and security.
“With remote work expected to continue in the coming months, dealmakers across the globe need to have the right tools to complete deals effectively and efficiently, especially as deal volume continues to rise,” Wiley said.
The poll results are based on responses from global M&A professionals in the Americas, Europe, the Middle East, Africa and the Asia Pacific region who tuned into Datasite webinar events between June 4 and Aug. 6.