M&A Outlook: How Companies Are Positioning For Growth

M&A Activity Status: Activity levels have remained at first-half 2021 rates throughout the second quarter, with a sustained increase in client appetite for "big, bold, strategic moves" across all sectors, sizes, and geographies.

• Volume and confidence in pursuing large transactions have continued to build, moving beyond simple "pent-up demand" into active strategic repositioning.
• Deal types include horizontal mergers, vertical integration, new product lines, SPACs, and Leveraged Buyouts (LBOs), including one of the largest LBOs of all time.

Strategic Drivers: The current surge is driven by a combination of offensive growth strategies and defensive risk mitigation.

• Offensive: Shareholders and boards are increasingly emboldened to support M&A as a primary tool for growth, citing the difficulty of organic expansion and the need to scale quickly against competitors.
• Defensive: Companies are restructuring supply chains to prioritize diversification over cost-efficiency to mitigate geopolitical and pandemic-related disruptions.
• Tech & ESG: Technology integration is a pervasive theme underlying transactions even outside pure tech sectors, while Environmental, Social, and Governance (ESG) factors have become central to boardroom discussions and value theses.

Investment Environment: There is an abundance of capital available to deploy, driving high competition for assets.

• Private Equity (PE): PE assets under management are at record highs, fueled by strong historical returns and significant cash accumulation by sovereign funds and family offices.
  • PE firms are becoming more aggressive as returns profiles tighten and investment cycles shorten, increasing asset turnover velocity.
  • A notable trend, particularly in Europe (UK, Nordics), is a surge in public-to-private transactions and SPAC-backed listings of quality assets.
• Capital Pools: Sovereign funds, SPACs, and PE funds are actively seeking transactions to put capital to work, with boardroom dialogue remaining at an all-time high.

Transaction Focus & Trends:

• Deal Size: The "engine room" of the market consists of transactions between $500 million and $5 billion to $10 billion, though mega-deals continue.
  • There is a growing willingness among corporate buyers to take risks on larger transaction sizes to strengthen existing businesses or add non-transformational lines.
• Cross-Border: True cross-border activity (transatlantic, Asia-Europe) was muted due to travel restrictions but is expected to rebound quickly as travel normalizes.
• SPACs: While activity has normalized from peak levels, SPACs remain a modest but persistent component of the market with over 100 SPACs possessing capital and deadlines to close deals.
  • European SPAC activity is specifically picking up, focusing on high-quality assets where public market access is desired.

Activism & Corporate Structure: A resurgence of activist investing is occurring, specifically targeting large-cap companies in the US and Europe.

• Activists are leveraging ESG themes alongside traditional portfolio mix and core-versus-non-core value arguments.
• This activism correlates with an uptick in structured M&A, including spin-offs and divestitures, to optimize corporate portfolios.

Outlook for Second Half 2021: The consensus outlook remains very strong barring a fundamental shift in economic drivers.

• Forward-Looking Statements: Goldman Sachs expects sustained momentum in deal flow, driven by supportive shareholder sentiment and the continued need for capital deployment.
• Risk Factors: While tax and regulatory shifts (including US administration changes and European national security focus) are top-of-mind, market practitioners view these as manageable variables rather than fundamental barriers.
• Resilience: The M&A market has demonstrated high adaptability to crises, with hundreds of transactions executed virtually during the height of the pandemic.