Signs of a positive Q4 despite lingering crisis

Going into Q4 2020, we’re seeing EMEA starting to peek its head over the crest of the global pandemic.

The just-released SS&C Intralinks Deal Flow Predictor for Q4 2020 forecasts that M&A announcements may see a YOY uptick of +6 percent, within a range of +15 percent to -2 percent. 

Distressed M&A deals have risen slightly here, but many companies will invest in non-core assets that are being divested off and will always try to find the best opportunity. Larger companies with cash are looking for opportunities. The market is expected to be active — especially in terms of private equity (PE).

Positive outlook for M&A

In Northern Europe, my colleague Mark Mua says there’s optimism about September and the rest of Q4 — provided there’s no second lockdown — as PE firms have lots of dry powder to deploy.

Take Spain, for example. “Activity was extremely low during the lockdown, especially in March, April and May,” says Intralinks’ Manuel López and his team there. Month by month, there’s been an uptick to “acceptable” levels, with clients adopting the wait-and-see approach as COVID-19’s true impact remains uncertain. 

Here in Germany, my colleague Sabrina Schwiertz also reports an increase in M&A activity, especially in Healthcare, Tech, Tourism, Logistics and Consumer Retail. Distressed activity hasn’t flooded in quite yet, although we’ve seen quite a few larger reputable deals come in during the months of June and July. Sabrina adds, “Studies forecast an uptick in Q4 when the easing of insolvency law will be tightened again.” Smaller, more ad hoc deals seem to prevail, she says, along with fire sales. “But it’s complemented by healthy M&A activities in the winning segments as well.”

Oliver Hassler, also from Germany, adds that the outlook for M&A has become more positive since the end of June, yet many pre-COVID-19 projects are still on hold.

In France, Intralinks’ Romain Lopez tells us the next quarter is quite optimistic. “LBO operations are still slow, with companies wanting to deal close before a possible second COVID-19 wave. Solid sectors here are Retail, Healthcare, Infrastructure and IT. “Close to half of our Q2 bookings were distressed M&A.” He expects a large increase toward the end of Q3, with a large increase of NPL deals in 2021.

Overcoming hurdles

The global obstacle? Completing due diligence at the right price. Deal prep is taking longer while buyers act with caution.

While the volume of bankruptcy and restructuring use cases have been minimal for now, use cases of capital-raising and rights Issues have been up.

“The longer the pandemic is hindering the economy, the more companies will unfortunately fall. Cost reduction and synergies with other companies will be more concentrated, as well as concentration on the core assets of the company,” says Oliver Hassler. 

Non-cyclical companies will emerge stronger from the crisis (i.e. IT, Pharma, Healthcare, and Consumer Goods) rather than cyclical companies such as Automotive, Tourism and Retail.

Find out more in the Q4 2020 edition of the SS&C Intralinks Deal Flow Predictor. Independently verified as a highly accurate six-month forecast of merger and acquisition (M&A) activity, the SS&C Intralinks Deal Flow Predictor is compiled by tracking early-stage M&A transactions globally that are in preparation or have begun due diligence.

Along with our forecast of M&A activity for the next six months, the latest issue includes:

• Spotlight feature: Are we in an epidemic of disputes? Read about the effects of COVID-19 on MAE/MAC clauses — and how to navigate them in a new M&A environment.
• An interview with Blair Nimmo, partner, UK Head of Restructuring and Global Head of Insolvency, at global accountancy and financial advisory firm KPMG, about the challenges his clients are facing, the role of technology in the age of remote work and his view on M&A, restructurings and insolvencies.
• An in-depth special report, Global M&A Catches Its Breath in an Uncertain Market, featuring regional spotlights using data provided by PitchBook.

To download the full report click here