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:

  1. Mandatory Spending = Spending required by law. Example: Social Security, Medicare, Medicaid. Remember that Laws can and are changed.
  2. Discretionary Spending = Authorized by the House and Senate
  3. 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

If you are a business owner and would like to discuss your plans, we are offering a one-hour complimentary call with any of our experts. You may book a call here.

You can watch the other episodes of Eaton Square Perspectives here.

Reece Adnams

Global Managing Principal and CEO

Reece Adnams is the CEO and Global Managing Principal of Eaton Square, a Mergers and Acquisitions and Capital Services advisor for technology, services and other growth companies founded in 2008.

[email protected] +61 03 8199 7911 eatonsq.com