By Rusty Wiley, CEO of Datasite
Between an international pandemic, statewide lockdowns, a globally watched U.S. presidential election, and massive economic uncertainty, 2020 has been a year unlike anything we've ever seen. The COVID-19 pandemic has caused tremendous personal hardship, while its second wave and continued spread continues to impact every facet of life and business - including the mergers and acquisitions market.
Dealmakers began the year with a robust and steady deal flow, until late Q1, when many sell-side deals paused due to the onset of the COVID-19 pandemic. At the same time, there was a marked increase in distressed deals. On our Datasite platform, which facilitates close to 10,000 global deals a year, distressed deals, including company restructurings and bankruptcies, rose from 7% to 30% by the end of April.
The difficult economic conditions, combined with increased interest in environmental, social and governance (ESG) factors, resulted in active dealmakers taking a more rigorous approach to due diligence. Year-over-year pages per project on our platform have increased by more than 16%.
After the initial market downturn, the volume of M&A deals began to rise again in May, eventually recovering in June. This recovery was due in large part to dealmakers remaining 'deal ready' throughout the height of the pandemic, allowing them to pick up where they left off before the downturn, and complete pending deals swiftly. Since the M&A market upturn in June, new projects on Datasite's platform climbed steadily, rising close to 20% in August, September, October and November compared with the same periods a year ago.
The COVID-19 pandemic also changed how we work, redefining standard industry and business practices. Video conferencing is now the norm, replacing local in-person meetings, and those to which we might otherwise have traveled. Beyond remote communication technology, the pandemic has highlighted the need for tools that allow dealmakers to successfully manage M&A processes - no matter their location. Recent technology tie-ups, including Saleforce's $27.2 billion intention to acquire of Slack, Cisco's announcement to buy Slido, and Facebook's plan to acquire Kustomer, are just some of the latest examples of this.
Still, there are a variety of economic, governmental, and medical factors that will dictate the activity of the 2021 M&A market. Primary among them is the availability of a safe and effective COVID-19 vaccine, according to a recent survey, which shows a majority of accounting, finance and corporate development professionals in the U.S. believe this, alongside the possibility of an additional government stimulus, will dictate M&A over the next 12 months. And, while a second stimulus package is still stuck in negotiations, refinancing and the renegotiating of debt is expected to rise, contributing to an overall increase in deal volume next year. The prospect of tax reform under a new administration, which accelerated deal volume in the latter half of 2020, is also expected to play role - yet a minor one - in U.S. M&A.
There will be other shifts in the global M&A market, as well. Asia Pacific, led by China, is expected to pass North America as the biggest target region for M&A investment by the end of this upcoming year. Additionally, the recent rise of special purpose acquisition companies (SPACs) as favorable alternatives to restructuring is also likely to continue. And last, but not least, concerns about environmental, social and governance (ESG) factors are expected to be the leading factor to derail a deal in 2021.
Overall, however, advantageous interest rates and the increased availability of capital are set to increase M&A activity in 2021 - even if dealmakers travel less, and continue to work remotely. Ultimately, dealmakers that remain 'deal ready' will be best positioned to reap rewards in 2021.