*Originally posted on the Datasite M&A Blog*
We’re now well into the new year, and it’s not too early to see some green shoots sprouting. Transactions that were on standby are coming back to life, and M&A activity has dramatically rebounded. Capital flowing at a high pace in SPACs, and other forms of creative dealmaking and innovation are expected to drive strong opportunities in 2021. To preview the year ahead, Datasite and Financial Times hosted a one-hour webinar to explore what’s in store for the Americas M&A market, moderated by James Fontanella-Khan, US Corporate Finance and Deals Editor at FT. “The New Americas M&A Landscape: 2021 Market Forecast” brought together financial services thought leaders to discuss today’s new political landscape, explore areas where new value can be found, and provide some perspective on the hot new SPAC activity.
Emerging into a new political landscape Michael Carr, Co-Chairman, Global Mergers & Acquisitions, Goldman Sachs, started the discussion with a look back at the past year, pointing out that the market community had moved fast to recognize the crisis and shore up financing and funding. In June and July, the M&A machine kicked into gear, and major transactions began to come back and build momentum. Carr noted that the fact that money is still essentially free is one reason why so many M&A transactions are still going on, and that fourth quarter activity has been quite strong. The elections have concluded, and Biden is viewed as someone who is trying to get people together and solve problems, which is appealing to the market. In a live webinar audience poll, 51% stated that they believe the new vaccine rollout and COVID-19 recovery plans will have a positive impact, and will increase M&A value and volume.
Where can value be found?
The discussion shifted to focus on which sectors are likely to be the most active in today’s new environment. Ashley Evans, Principal at The Carlyle Group, noted that last year’s healthcare crisis accelerated a number of technology trends—and impacted companies’ acquisition strategies.
Evans noted that many companies quickly went back to work after the major shutdowns in Spring, 2020. She added that workflow and technology changes that would have taken generations have taken weeks, driven by CEOs and managers. For the broader capital markets, the future has come early. Today’s environment is driven by rapid adoption of technology, which changes companies’ approach to what kinds of companies they want to serve them.
Mark Williams, Chief Revenue Officer, Americas at Datasite, noted that the shift to remote operations has also increased the pace and efficiency of due diligence for transactions.
“One phenomenon we have seen particularly with work from home is a lot more is being done electronically and online,” said Williams. “With the number of transactions we do every year, the number of SPACs we have supported, we see the questions and volume of questions that potential investors are asking the SPAC companies, and the level of due diligence is very high.”
Recent major acquisitions have demonstrated the agile new pace of deal making. In August, Salesforce CEO Mark Benioff said he didn’t see any major acquisitions for Salesforce, but by December, they closed on Slack acquisition for $28 billion. This acquisition, supported by Datasite, showed the speed in which due diligence can happen now. It also underscored how prepared some companies are to move when the market is right.
Evans noted that performing due diligence remotely offers the potential for substantial benefits. Prior to 2020, most firms would never have imagined closing a transaction without meeting the CEO in person. In this environment, her organization has devised novel ways to get to know the teams and build relationships. For investments in software companies, she added that the real focus is on evaluating the technology, rather than visiting sites. Much of this evaluation can be done more efficiently using a remote method.
Is the SPAC attack here to stay? Much of the discussion focused on the rapid emergence of SPACs as the hottest new trend on Wall Street. Harry Sloan, Founder of Eagle Equity Partners, noted that SPACs have existed for years, but when DraftKings went public in April, 2020 using a SPAC strategy, the event marked a watershed moment for this innovative approach. Carr viewed the current environment as an awakening of smaller companies that have been brought to the market. He observed that many tech companies are small, entrepreneurial organizations. Bringing together smart innovators with capital can dramatically drive GDP, and create exciting deal making opportunities. The speakers also contrasted traditional private equity companies and SPACs, and deal opportunities for both. Sloan stated that, until recently, there was a roadblock between private equity and SPACs. However, over the past year, deals have gotten bigger, and we are seeing more room for private equity and SPAC sponsors to make money. He also observed that SPAC sponsors have become more flexible in terms of fees, creating a better relationship with private equity. Evans added that the investing landscape has been very competitive for many years, and that SPACs are an additional source of capital—and in some cases, they are the best buyers for certain assets. She noted that SPACs will sometimes serve private equity when her firm has assets to sell, and sometimes it will act as an additional source of competition when it is an asset her organization might have wanted to buy. In this environment, where money is very cheap, it is inevitable that equity prices will be high and people will be looking for yield in many different ways. It is incumbent on capital providers to keep picking better companies, supporting the managers, and helping them drive value creation as they try to generate returns for our investors. The panelists were all in strong agreement on one point: the current environment offers substantial opportunities as the global economy turns the page on 2020. To gain more insights into the FT webinar’s predictions for M&A, sign up to view the webinar video.