Despite the continuing pandemic, there are many economic opportunities available. Merger and acquisitions (M&As) are exploding at rates unseen in decades, and strong GDP and CPI data show an economy holding steady.
The booming economy means an increased need for legal consulting, especially for companies dealing with M&As. Collier Legal Search can help you find qualified legal professionals if you want to further your firm’s growth.
Future Opportunities for Value Creation
While many companies are presently pausing to determine where the opportunities for value in their business lie, consider these three areas :
Growth
Companies must seek inorganic growth to stay competitive, particularly by developing their tech and innovation advantages. Companies recognize that this requires expanding revenue potential rather than cutting costs.
For example, Panasonic identified its competitive advantage in the shared supply chain sector. They acquired Blue Yonder, Inc, a software developer specializing in supply chain management, in a $7.1 billion deal to develop this area.
Scalability
Companies seek to scale up in size and reach, influencing the types of deals they pursue, particularly for large corporations, which seem to be more efficient and have access to more capital. These deals involve strategic tie-ups, such as the $30 billion mega-deal between the Canadian National Railway and Kansas City Southern to create a shipping rail system directly connecting Canada, the US, and Mexico.
Disruption
Disruption refers to an increased commitment to technology as businesses strive to remain relevant in the involved industry. One-third of global deals were grounded in technology, media, and telecommunication industries in the first half of 2021 as companies sought to expand their competitive advantages in those areas.
Private equity funds (PE), on the other hand, invested heavily in resilient markets such as healthcare and technology, which experienced the most market disruption during the pandemic. PE investors also pursued investments in new markets such as work-from-home (WFH) and distance learning that reflect long-term behavior changes created by the pandemic.
PE investments also targeted Environmental, Social, and Governance (ESG) as the market becomes increasingly focused on net-zero, sustainability, wage inequality, diversity, public safety, and privacy issues.
Increase in Available Funds and Affordable Financing Means More (and Bigger) Deals
There have been more M&A deals in the last six months than in any other year. Globally, there were 28,175 deals between January 1st and June 30th, with US deals up 264% from last year.
There are a few reasons for this growth, all involving an abundance of easy-to-access capital for investments.
- Interest rates remain low and steady, meaning investors have access to cheap capital they can use to pursue inorganic growth opportunities.
- Special Purpose Acquisition Companies (SPACs) exploded in early 2021, with over 274 formed. While the SEC announced new financial reporting guidelines in April, slowing down the rate of SPAC creation, about half a trillion dollars needs investment before 2023.
- A strong stock market means target acquisitions can get a high price, allowing them the luxury of shopping deals.
- PE companies with large portfolios have rebounded from the pandemic faster than smaller ones. They have benefitted from the strong stock market, allowing them to divest through IPOs earlier than expected and generate more funding.
- Possible increases to the capital gains tax in the future mean people with capital are seeking to invest it now.
- Many industries hard hit by the pandemic, such as airlines and cruise lines, face cash liquidity problems and may need to restructure through M&A to survive.
- Financial Deals Are Adapting
The pandemic changed human behavior, which meant financial deals needed to change as well. Uniquely structured investments are becoming more common.
Real Estate
With the shift to WFH and flexible co-working spaces, tenants have gained power from the property owner. Tenants can now enact more protection into their lease through limited rent escalation and possible rent rate reduction if an economic shutdown impacts the tenant’s income.
Shifting real estate deals are not unique to the commercial sector. The National Association of Realtors released a report asking for a “once in a generation” response to the underinvestment and underbuilding of the housing market, resulting in a more than five million unit shortfall since 2020.
Rise of the Mega Deal
While all M&A deals are up in the first half of 2021, billion-dollar deals have seen the most significant increase, with more than 500 individual billion-dollar deals so far.
Many mega-deals, especially those involving large amounts of capital, involve multiple PE investment companies, such as the deal between Blackstone, The Carlyle Group, and Hellman & Friedman acquiring Medline Industries in a $30 billion deal.
Collier Legal Search Can Help You Adapt
Collier Legal Search is uniquely qualified to use its expansive network to help you find associates, partners, or legal professionals as you build your firm’s corporate law capacity through long-term solutions or contract help. Contact us to help you find the perfect qualified applicant today.