I asked Taylor Devine, Principal from Washington DC and a fellow of the M&A Source, on his insights about the US M&A market. We talked about the leading indicators of where the US market is headed. Watch the full video below.
What is going on in the US M&A Market?
AMAA Mid-Market Report published 3 July 2020 states that out of the 2,274 deals being worked on in Feb 2020, by mid-June 2020:
- 46% had successful closed or were still active
- 54% were on-hold, suspended, terminated
Successful closed or were still active vs on-hold, suspended, terminated, varied greatly by industry:
- Some industry groupings:
- 70% had successful closed or were still active
- 30% were on-hold, suspended, terminated
- Other industry groupings:
- 20% had successful closed or were still active
- 80% were on-hold, suspended, terminated
- New Deals being work on since COVID-19:
- 42% are in 3 industries: Manufacturing, HC, Medical
What is driving the US M&A Market?
There is good news and bad news driving the US M&A market. First, the negative impacts:
- Fear of the rising COVID-19 cases in the US
- Fear of unemployment in the US last week (2.8 mil, 11%)
- The growing political ideology differences between the role of government in our personal lives, in our business lives and the economy.
- The stock market is volatile
- The supply and demand of attractive and doable deals impacted by uncertainty and risk assessment. Some sectors very positive, some sectors not so much.
Now the good news:
- The structural economics of our economy are very good.
- The banking system is strong (big difference compared to 2008).
- For may industries, M&A supply and demand is very good.
- There is increasing and pent-up demand for goods and services
- PE has lots of capital it wants to and needs to deploy and will over a period of time in M&A as it feels more confident in doing so.
- The “new normal” will be stronger than the pre-pandemic normal.
- Again, to understand what is driving US M&A, the needs to ask a different, more precise question is segment the industry and roles people play will provide the person with a more useful answer to what is driving M&A in the US.
What are the leading indicators that will give an insight as to where the US M&A Market is going?
The Federal Government Budget reflects the priorities and the balance of power of the President, the Senate, the House, and the balance within those 3 entities. There are three (3) kinds of budget $ that have an impact on M&A and IB:
- Mandatory Spending = Spending required by law. Example: Social Security, Medicare, Medicaid. Remember that Laws can and are changed.
- Discretionary Spending = Authorized by the House and Senate
- Appropriated Spending = Actual $ put in place to fund Authorized by the House and Senate
What we are looking out for:
- The impact on M&A of any changes in Federal Govt Mandatory and Discretionary Funding
- Impact on M&A in Industries where technology = disruption = game changers
- The impact on M&A in Industries where political pressures will drive economic &/or ways of doing business = disruption = game changers
- How the mood of the country is impacting legislation the availability of capital to fund M&A
- The impact of our Nov 2020 elections impact on M&A sectors
- Understand 5 M&A Metrics in the industry you are interested in
- # of deals trend
- $ size of deals trend
- Valuation trends
- Actual capital committed to do deals trend
- Any metric that is uniquely important to the industry sub-segment you are working
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You can watch the other episodes of Eaton Square Perspectives here.