Ciesco's September 2020 Global M&A Update provides an analysis of transactions completed this year to date, underlining the resilience and increasing value of the companies within the digital, media, marketing and technology sectors despite an unprecedented and challenging global crisis.
Our analysis shows a year-on-year drop of 17% in the volume of deals completed, with 834 deals completed to date, and a drop of 56% in the value of disclosed transactions.
Q1: A VERY STRONG START TO THE YEAR
A quick dip after a strong jump in deal volume a
mid the pandemic turmoil
2020 had a strong start, showing high levels of M&A activity, with 349 M&A transactions announced during Q1, driven mainly by solid macroeconomic conditions, high equity prices and buoyant financing conditions prior to the crisis. This coincided with the boom in stock markets – FTSE100 reached its 6-month record-high on January 17th, followed by S&P 500 and Nasdaq’s all-time record highs on February 19th. The relaxation of the US-China trade tensions in November 2019, combined with the loose monetary policy in place, resulted in an overall increase in global asset prices.
Q2-Q3: COVID-19 IMPACT IS VISIBLE
The Covid-19 impact became evident in the second quarter, when we saw a 44% drop in deal volume in April and 40% in May, compared to the same period last year.
The emergence of the pandemic and its rapid global spread triggered the most critical recession of the last century. Covid-19 had a profound impact on consumers’ lives – they changed the way they shop, work and live. Subsequently, this had knock-on direct and indirect effects on all global industries – travel and hotel industries will take years to recover, US oil prices turned negative for the first time on record and the retail industry was drastically affected, with almost every non-food retailer exhibiting negative operating cash flow.
Q2 and Q3 data on M&A deals in media, marketing and digital showed a decline versus Q1 and versus the same period last year.
This level of the decline of 17% compares favourably to the rest of the market and signals relative resilience of our focus sectors to the pandemic-related downturn.
Unsurprisingly, no mega deals (deals with values over $10bn) have been announced in the digital, media, and marketing sectors, this year to date.
There has been a 56% decline in deal value of the transactions completed in the last 9 months, in comparison to the same period last year – a decline to $38.5bn from $87.1bn*. It is important to note that the majority of deal values remain undisclosed and therefore these values cannot be considered a refection of the deal activity.
Some of the higher-value deals that were completed in this period include Platinum Equity’s acquisition of Cision in January, for $1.5bn, and Banijay’s acquisition of Endemol Shine Group in July, for $2.2bn.
*Note: the value of $87.1bn last year does not include two mega-deals that took place
GEOGRAPHY OF THE TRANSACTION TARGETS
Significant deal volume decline in the US and the UK and increased activity in APAC.
Historically, the US and the UK have been the countries with the highest number of M&A targets in our focus sectors. It was not surprising that with the increased global uncertainty, both the US and the UK suffered the largest drops in volume, 20% and 35% respectively.
There was an increase in the deal volume in the APAC region, driven mainly by the increased activity in China and Australia.
In Western Europe (excluding the UK), there was a slight decline of 8% in the overall deal volume. The main contributors to that decline were Spain and Belgium, where the number of deals has halved. France, on the other hand, recorded 48 deals, a 17% increase from the same period last year.
Domestic deals (as opposed to cross-border) continue to dominate (64% globally), a trend which has also been striking in 2019 (63%) and 2018 (70%).
“SOCIAL DISTANCING” ENABLERS PREVAIL
The “new norm” of life led to significant changes in consumer behaviour, leading to a shift in demand towards digital and agile solutions.
As the lockdowns continued, the pandemic had a direct negative effect on many sectors, whilst demand spiked for “distanced” entertainment, virtual events, online shopping, digital team management and communication solutions.
The two most active target sectors within our focus universe – Digital Media and Traditional Media, saw a decline in the number of deals, but nevertheless remained the most attractive sectors, with 170 and 168 deals respectively, in the first three quarters of 2020.
The only sector that experienced year-on-year growth was CRM, which saw a year-on-year increase of 46% in the number of deals, with 38 transactions completed to date.
THE TOP BUYERS LIST IS DIVERSE AND DYNAMIC
As has been the case for the past several years, the Top Active Buyers list is diverse and includes consultancies, holding networks, Private Equity buyers, mid-market companies and tech giants.
The PE houses remained resilient, even during these uncertain times making up 37.8% of overall buyers, only a slight decrease from the same period in 2019. Despite there being a slightly lower leverage activity, due to the focus on existing loans, and on completing priority deals first, dry powder is available. With the crisis first affecting the corporate side rather than financial institutions, trust in private equity firms should not be expected to vanish as it did in 2008.
Investors are showing optimism in the business climate driven by the record-high levels of fiscal stimulus, low-interest rates and low inflation. As a result, PE houses are actively seeking deals, given the high levels of capital they possess for deployment. In fact, they are not simply pursuing opportunistic investments, but rather good and valuable companies, to work alongside them as partners.
THE CRISIS PRESENTS AN OPPORTUNITY
The consumer behaviour continues to be driven by new personal circumstances, such as changes in discretionary income and spare time, and reconsidered values and priorities – all these changes will all affect the future direction of M&A. While many companies are challenged to survive in the short-term, the crisis also presents an opportunity.
As our data shows, buyers remain actively involved with the digital, media and marketing sectors. The focus is now both on short-term survival and on coming out as a winner in the longer-term. The way out of the crisis is through M&A and the conversations are happening around strategic positioning and re-positioning post-Covid-19.