The Unpredictable Year: U.S. M&A Reflections and Projections
|To epidemiologists, a global pandemic was not a matter of “if,” but “when.” But to the rest of the world, the events of 2020 have been full of surprises. Today, much remains in flux: Americans brace for a second wave of the virus, Congress and the White House engage in a tug-of-war over potential stimulus, the stock market is a bit jittery and the presidential election continues to divide the country.
As we turn the corner into the final months of the year, we are taking account of this unpredictable year thus far—and outlining our projections of what may come to pass in the days ahead.
Top 3 Debunked Myths from 2020
When COVID-19 hit, the industry expected pervasive negative implications on deal-making and company health. These expectations, outlined and debunked below, turned out to be myths—not reality. In short: this year will close out far stronger than anticipated.
|M&A Will Grind to a Halt
When we entered this period of economic uncertainty, the investment banking industry expected to see an increased demand for stressed or distressed activity and “healthy” or growth M&A to grind to a halt. We were wrong.
Looking back at the start of 2020, the private equity community’s number one goal was to put more capital to work. With that in mind, PE firms have been hungry to invest in those businesses that have done well despite the hurdles during COVID-19—and now have compelling stories to tell about their performance during this period and/or outlook going forward. At the end of the day, the supply of capital available for new investments continues to greatly exceed the opportunities to invest in high quality companies.
|The Stock Market Will Plummet
The stock market has held up better throughout COVID-19 than anyone anticipated.
|Distress Will be Ubiquitous
As in any down market, the industry expected many businesses to face challenges and require restructurings or distressed sales. Yet, the lenders to these businesses have been slow to force this activity despite increases in default rates. In addition, by propping up struggling businesses, in some cases federal stimulus may have masked the true economic damage that COVID-19 has caused.
Lincoln Perspective: Predictions for Q4 and Beyond
It is a hazardous game to place bets on what may happen in the remainder of this unpredictable year and beyond. But with the benefit of insight gained from the first half of the pandemic, we expect:
|Owners Ready to Sell Pushing to Close Soon:
If both the White House and Congress turn blue on November 3rd, investors could see a material increase in capital gains tax rates. With this in mind, in the near term we expect business owners who were contemplating a sale to do everything within their power close a deal sooner rather later. While tax increases passed in Congress traditionally have taken affect in the following tax year, Congress has the right to make them retroactive to the beginning of the year.
|A Good Year for M&A—And Restructuring:
Normally, a strong restructuring year is poor year for M&A and a strong M&A year is a poor year for restructuring. Yet, looking ahead, we expect both to do well. With capital to deploy, investors will continue to look for compelling businesses that have remained healthy during the pandemic or bounced back quickly with strong outlooks. At the same time, as economic stimulus dissipates and the fog clears, we’ll also see that there is distress hiding in plain sight—revealing targets for opportunistic investors.
For M&A deals in 2021 we expect:
Lincoln International shares predictions on what's in store for mergers and acquisitions (M&A) and restructuring in Q4 2020, and beyond.
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I am enthusiastic about creating sustainable growth and the highest value for our clients, and strive to leave a positive footprint beyond any successful M&A transaction.
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