The 2020 Global Health Pandemic Brought Radical Change
The 2020 pandemic shook up all types of businesses, including private equity groups seeking to grow through strategic acquisitions. Here’s a quick roundup of how Covid-19 changed the M&A landscape in 2020 and a few changes to expect in 2021.
Effects of 2020 Pandemic
Deals were paused during the first phase of the Covid-19 pandemic in March and April.
Buyers sought to preserve their liquidity to ensure their own businesses would survive all of the uncertainty. As many offices closed and travel shut down, the traditional methods of executing deals were disrupted.
According to data published by MergerMarket, about 40% fewer deals were announced in March and April of 2020 compared to the same period in 2019.
Some mega-deals, such as Xerox’s proposed $35 billion takeover of HP, were withdrawn. No new mega deals were announced in Q2. (Source: Mergermarket)
Dealmaking in more stable sectors of the economy resumed in Q3. In Q3 and Q4, 17 mega-deals worth more than $250 billion were announced. Activity resumed in sectors such as manufacturing, technology, life sciences, and business services. Deal activity remained low in sectors such as travel and leisure. (Source: Mergermarket)
In the printing space globally, 2020 was extremely active on the part of both strategic and financial buyers. Ambitious, qualified buyers are signing up to learn more about how our industry knowledge and connections can help them meet potential sellers.
It’s no secret that the labels and packaging segment is currently the hottest field in the printing space. That’s partly because the demand for labels and packaging remained fairly predictable, even during the COVID-19 disruptions.
When money talks, owners listen. Deals are getting bigger and transactions are closing larger if the seller can be scaled.
Some label and packaging-related deals announced in 2020 include:
Some deals in 2020 were developed directly from CEO to CEO. Smart buyers are achieving huge savings by eliminating M&A consulting transaction fees and agreeing to pay higher fees when the proposed transaction is successful.
The landscape shifted from a seller’s market to a buyer’s market. Retirement-age business owners who rejected reasonable offers in 2019 regretted holding out for a better deal in 2020. Now, many sellers understand they may receive less attractive deals if they are not reasonable in terms of valuation and if their business isn’t scalable. No financial buyer is looking for a distressed or turnaround situation. They are looking for sellers that have the potential to grow within five years and enable the buyer to make a successful exit.
Six Trends of Watch in 2021
Deals are getting bigger and closing larger if the business can be scaled. Share on X1. M&A activity will rise.
As the uncertainty about the economy decreases, 2021 M&A activity will rise. The SS&C Intralinks Deal Flow Predictor forecasts an 18% increase in worldwide M&A announcements in the first half of 2021.
“During an unquestionably volatile year, global M&A activity is showing continued signs of confidence and recovery,” said Ken Bisconti, Co-Head, SS&C Intralinks.
“Due diligence activity in virtual data rooms points to double-digit growth in H1 2021 M&A deal announcements worldwide.” (Source: SS&C Intralinks)
2. Dealmakers will conduct fewer in-person meetings.
In 2020, most business professionals learned to conduct videoconferences, collaborate more effectively with remote workforces, and produce virtual tours of facilities. While some in-person meetings and business travel will still be required to research and finalize a deal, companies may choose to skip some of the time and expense of travel in favor of more efficient video meetings.
3. Acquisition targets may shift.
Permanent changes in consumer behavior and accelerated technology adoption may shift some of the targets for acquisition. Private equity firms may be less likely to invest in fields that were easily disrupted (such as international travel, fashion, and large-crowd indoor events) in favor of more stable fields, including healthcare, packaging, and consumer goods.
Based on how different nations responded to the pandemic, a European private-equity firm refined the analytics used to evaluate different industries in which they invest. Their new models help them identify assets and acquisition targets that face severe financial distress if Covid-related closures persist. (Source: McKinsey Analytics.)
4. Buyers may be more assertive in agreements and negotiations.
Colin Wittmer of PWC believes “During closing, acquirers may look at where they can claw back value to compensate for possibly overpaying in the previous seller’s market.”
5. Efficient production & modern technology will be in demand.
Entrepreneurs that have successfully built highly automated, data-driven production facilities may attract multiple offers. The Covid-19 pandemic has accelerated the adoption of production and retailing technologies that increase supply-chain efficiencies and reduce waste. Companies with experience in e-commerce, on-demand manufacturing, low-labor-cost workflows, and fast, efficient delivery of products will be attractive to investors who need expertise in digital transformation.
6. The ability to pivot will become a key consideration.
Forward-thinking companies in the label, packaging, and specialty graphic industries are worth considering. Successful companies at the forefront of digitally printed labels, packaging, and specialty graphics were able to quickly shift their production as consumer buying habits changed and supply chains were disrupted during the pandemic. This agility will become increasingly important in the coming years.
The use of digital printing in labels, packaging, and other fields is expected to rise as manufacturers produce smaller runs of a higher number of different products. To reduce environmental impact while meeting rising expectations for fast delivery, many products will be manufactured and packaged closer to the sites where they will be distributed and used.
To learn more about potential opportunities in the label and packaging industry, call me at 561-543-2323. Tell me your story and what you are looking to achieve. Together, we can build a strategic roadmap to help you reach a quick and successful close.
Sources:
Mergermarket: M&A Predictions in a Post-COVID19 World: U.S. Edition by Philip Segal
PWC: Covid-19 and Deals: A Sudden Shift in M&A Dynamics by Colin Wittmer
McKinsey Analytics: “Accelerating Analytics to Navigate COVID-19 and the Next Normal,” by Nicolaus Henke, Ankur Puri, and Tamim Saleh
SS&C Intralinks® Deal Flow Predictor