After the unprecedented challenges of 2020, deal-making surged to record levels in the first half of 2021 as economic confidence rebounded and investors began to put money to use after holding off during the pandemic. The value of both U.S. and global mergers and acquisitions hit record highs during the first half of 2021, with $1.3 trillion in U.S. deals accounting for 47% of the $2.8 trillion in worldwide M&A. Industrials and business services M&A has followed a similar trend, with the value of all deals closed increasing by 91% in the first half of 2021 compared to the first half of 2020.
Private Equity M&A Appetite
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Private equity firms have begun deploying significant amounts of dry powder, closing more than $550 billion of deals in 1H 2021, the busiest six months on record. As private equity firms refocus their portfolio companies on profitability, we anticipate an increased emphasis on consolidation and vertical integration as businesses look to streamline overall operations and drive cost efficiencies through scale.
Strategic Acquiror M&A Appetite
Strategic acquirers continue to focus on geographic expansion and service offering augmentation, leading to M&A strategies that emphasize regional consolidation and scale. As strategics also continue to focus on profitability, we believe some will consider divesting non-core assets in order to double down on core capabilities.
2H’21 Outlook
● We expect robust deal activity to continue for the remainder of 2021, with a strong interest in acquisitions from both private equity and strategic acquirers
● Acquirers are especially interested in targets with recurring revenue and significant buy and build opportunities, leading
to strong interest in the fragmented residential services, personal protective equipment, and staffing sectors
● Cost reduction measures during COVID-19 led to significant demand for business process outsourcing and other
efficiency-focused service businesses. To improve operating efficiency, many companies are seeking to replace fixed
costs with variable costs, enabling management to focus on tasks that are deemed strategic, which is in turn driving
investment in this sector.
● The M&A market continues to see an abundance of deals across all segments, leading to investors being highly selective
about opportunities due to bandwidth constraints
● Nevertheless, with strategic and private equity acquirers competing head to head for strong assets, valuations are
expected to remain high for attractive assets
Jeremiah Mann
Managing Director
jmann@intrepidib.com