US M&A Outlook for 2021 Appears Positive, Driven in Part by SPACs
Corporate executives are optimistic about M&A activity in 2021, with 53% of U.S. CEOs in a recent PwC survey stating that their companies planned to increase M&A activity in the coming year. Despite the economic challenges faced in 2020, in large part due to the COVID-19 pandemic, other factors, such as record low interest rates and significant amounts of corporate cash reserves and private equity capital, mean that some strategic and private equity buyers are in a strong position to engage in deal making.
Special purpose acquisition companies (SPACs) are also expected to play an increasingly significant role in M&A activity going forward. The popularity of SPACs has skyrocketed this year, with 242 SPACs created as of mid-December 2020, which represents four times more than the number introduced in 2019. Additionally, SPACs accounted for approximately 25.3% of global IPO proceeds raised in 2020, compared to around 7.4% in 2019. Although overall deal volume and deal value decreased in 2020, the decline was not as significant as originally expected, due in part to activity from SPACs. With a typical time horizon of two years or less to complete a business combination transaction, SPACs launched in 2019 that failed to complete transactions in 2020 will be diligently searching for acquisition targets in 2021, and SPACs that were newly created in 2020 will also contribute to M&A activity in 2021 and 2022. This could be good news for the retail industry, which was among the industries hardest hit in 2020 and has numerous companies that may be seen as attractive M&A targets.