Mergers & Acquisitions Excerpt | What’s Ahead for M&A in 2020? We Ask 8 Advisors

Dec 2019

Originally published by Mergers & Acquisitions on December 27, 2019 | Excerpt from interviews with eight bankers and other advisors for their outlook on M&A in 2020

What’s ahead for M&A in 2020? We ask 8 advisors

If there’s anything M&A professionals dislike, it’s uncertainty. And heading into 2020, there’s more than enough uncertainty to go around, including questions about the economy, international trade, impeachment, domestic politics and more. The funny thing is, the lack of clarity may actually make the first half of the year a great time for M&A, as dealmakers push to close transactions before the looming uncertainty of Election Day and its outcome.

We are finishing another record year of closings at Lincoln and also have record levels of backlog looking into 2020. With the prolonged period of economic expansion, beyond the timing most expected, we have started seeing private equity firms think about selling high-performing companies with shorter-than-expected hold periods. We think this bodes well for both the quality and quantity of deal flow going into 2020. On the flip side, indications from several private equity firms suggest there has been a slowing level of deal flow in Q4 2019, but based on our backlog, I believe this is merely a calm before a flurry of new deal opportunities to come to market in early 2020.

We recently surveyed more than 160 private equity investors and over 60% said that they expect deal flow to be either flat or up in 2020. If this prediction plays out, 2020 will be another great year for M&A. Add to that the fact that nearly 80% said that their number one objective in 2020 is deploying capital and it’s hard not to be optimistic.

We enter the new year with continued strength in the economy overall, but with some areas of strength and weakness that investors should consider carefully. Companies that sell well on the e-commerce channel are likely to continue their expansion even in the face of an economic slowdown, unless the products they sell are highly discretionary and cyclical in nature. Brick and Mortar-only platforms will continue to have challenges.

For example, this holiday season e-commerce sales were up nearly 20 percent on Black Friday (to $7.4 billion), while Black Friday foot traffic and sales were down 2.1 percent and 1.6 percent respectively compared with prior year. As e-commerce continues to take share in the large consumer sector, clearly companies that sell through on-line channels will have more wind in their sails in either strong or weak economies.

Investors like predictability and certainty when making a deal. This is particularly important for the first year of an investment, when debt levels and integration risks are at their highest levels. The polarization of presidential politics in recent election cycles have not contributed to the feeling of stability. As the election draws nearer and the differences in leading candidates becomes more apparent, dealmaking could be affected.

All that said, at the end of the election period, it feels likely that the U.S. will end up with either the same president (a known quantity at this point), or a new president that is promising more stability, improved international relations (i.e tariffs) and some form of economic stimulus. In either outcome, I believe the presidential election, while certain to be entertaining, will have less impact on the overall dealmaking market than many predict. The strength of the overall economy and consumer confidence will be the primary drivers of the market.

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