Mergers and acquisitions (M&A) deals have soared both in volume and value in 2021 after a dip last year when the coronavirus crisis hamstrung the corporate world. This rise in M&A deals is set to continue, as per ‘Mastering the Art of Breaking Up’ report by Boston Consulting Group (BCG) in collaboration with Professor Sönke Sievers of Paderborn University.
This report analyses BCG’s M&A database of over 840,000 deals from January 1980 to June 2021. Deal values and deal volumes recovered strongly in the first half of 2021 with deal values 136 per cent higher and deal volumes increasing 32 per cent compared to the same period in 2020. North America led with deal values at a record high in the first half of this year whereas media and entertainment, energy and utilities sectors showed the strongest deal flow through mid-September.
“M&A activity in the first half of this year has reached one of the highest levels we have seen over the past decade, comparable to the levels of 2007 or 2001, and the trend is continuing through the second of this year,” a BCG managing director and senior partner, the firm’s global M&A head and a co-author of the report Jens Kengelbach said.
The report lists raising cash optimizing corporate portfolio as the key objectives amongst several others as main reasons behind companies opting for M&As. It further projects a continuing favourable environment for M&A activity, driven by factors like ongoing uptick in economic activity, abundance of capital on the M&A demand side which is accompanied by the rise in “special-purpose acquisition companies” that are entering this space with sizeable targets.
This report also states that portfolio reshufflings and divestitures of non-core assets can create substantial value for shareholders. Two measures of value creation were – cumulative abnormal returns (CAR) around the announcement date and relative total shareholder returns (RTSR) during two years after a divestiture.
Sellers’ CARs have gone up from 0.23 per cent in 2016 to 0.74 per cent in the first half of 2021. This can be attributed to the revival of the ‘animal spirits’ of the market on the back of government stimulus measures taken in 2020 and strong economic recoveries reported worldwide. RTSRs for sellers also went up from ~1.5 per cent for deals announced in 2014 to 4 per cent for those announced in 2019.
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