Who Will Buy Your Business?

While 2020 was extremely challenging, the introduction of vaccines should provide optimism that both our health and the economy will improve in 2021. COVID-19 had an impact on M&A activity as the pandemic took its toll on the nation. However, as the year closed out, the total impact on M&A activity was not as dramatic as originally anticipated.

M&A Transactions

According to Pitchbook*, as of December 31, 2020, the number of M&A transactions estimated to have closed in North America in 2020 was 12,265, down 665 (5.1%) when compared to 2019. The majority of the decline in 2020 occurred during the second quarter, when the most significant impact from the evolving effect of COVID was experienced. The good news is that deal flow returned in the second half of the year – Q4 2020 deal count was up significantly when compared to Q4 2019 and Q3 2020. Pitchbook* further reported that M&A activity was down the most in the energy and B2C sectors, while financial services, healthcare and IT were the sectors that fared the best in 2020.

In the last ten years, we have seen deal activity slowly shift toward private equity sponsored transactions and away from traditional corporate M&A. For 2020, however, Pitchbook* reports that corporate M&A had a small gain in its proportion of deals closed. The increase in the proportion of deals consummated by corporate buyers would have perhaps been more if sponsor-backed deals had not made a resurgence in the second half of 2020. Private equity shops continued the trend of focusing on add-on acquisitions in 2020. Pitchbook* estimated that add-on deals constituted 72% of recorded private equity transactions, compared to 68% in 2019.

Central Texas M&A Trends

The trends we saw in Central Texas were similar to those reported on the national level. The list of 2020 closings below illustrates that good businesses continue to attract buyer activity, and command solid value in the market.

What’s ahead for 2021? Businesses in sectors hardest hit by COVID-19, which were either in the M&A market or were evaluating entering the market at the beginning of 2020, have put their plans on hold. As the outlook for recovery in those sectors improves, those businesses will likely return to the market. Conditions remain positive for M&A as interest rates are extremely low, private equity firms are flush with cash, the SBA lending limit for acquisitions is $5,000,000, and recently passed legislation contains provisions that waive fees and lower the cost to acquire a business.

Central Texas continues to be high on the list of hot spots in the U.S. where business buyers are focused for future acquisitions. So, the outlook for M&A in 2021 looks positive.

*2020 Annual North America M&A Report