INSIGHTS

2021 M&A Predictions

29/12/20
Thought Piece

Our predictions for M&A in 2021 across the Business to Business (B2B) sector highlight the impact of Covid as well as other business and cultural shifts previously underway that have been accelerated by the pandemic.

1. Employee and consumer markets converge
As the distinction between work and home life continues to blur post Covid, many B2B companies will come under pressure to revise and relaunch services and technologies to take account of new working models. This will, in turn, drive M&A as companies make acquisitions to adapt their solutions in this way before their competitors.

2. Client/ candidate/ employee experience will attract attention
In a modernising post Covid world, companies will look for sustainable competitive advantage, not simply in the old ways of building value chains and value propositions, but in how they understand, engage, and make people happy – clients, candidates, and employees. This will drive M&A further into experiential and engagement services and technologies.

3. Technology vs non-technology valuations will narrow
As tech-enablement of services becomes a mainstream commercial norm in the mid-market the distinction between tech and non-tech valuation will narrow.

4. M&A volumes will increase but not in a linear way
Over H1 2021, we expect a flurry of new deals to be consummated, after which the market will slow and settle into an incremental return to health over the next few of years (this ignores the possibility of a W shaped economic recovery).

5. Cross border M&A will be more cautious
“Political localism” (think Trumpism and other forms of anti-globalism) will leave an imprint on M&A at the lower-mid and mid-market level, meaning that fewer cross-border deals are likely to be consummated as buyers focus more locally/ nationally.

6. Ethics in AI will become an issue
The increasing insertion into life and business of artificial intelligence (AI) will accelerate over 2021, exponentially so in certain B2B arenas. From this will come a new scrutiny on how ethics within AI are managed, and how clients, candidates, and employees and their interests are protected.

7. Technology valuations will evolve away from multiples-of-sales
Over the last 5 years, and exacerbated by Covid, much investment cash has been lost on technology deals based on multiple-of-sales valuation that never reached profit before technology obsolescence. We believe that mid-market tech valuation will evolve towards a blended basis of sales and near-term profit and net cash inflows, with a maturing appreciation by the investment market of tech-obsolescence risk.

8. Private Equity will begin a shake-out
As capital taxes rise to pay for Covid, so is removed the advantage of Private Equity in taking their rewards through shares and capital gains at low tax rates. And as their financial returns reduce through higher tax, and competition remains high, the PE market inevitably tightens, and a market shake-out will begin.

9. Deal structures will get more complex
Where company earnings have been hit by Covid, present valuations will inevitably have fallen. Where shareholders do not want to wait for a deal to happen, the use of deferred, contingent, and rolled-over consideration in deal structures will be the likely solution.

10. Increased levels of Asia Pacific buyers
On account of the APAC region’s effective handling of Covid, and its continued high economic growth, we expect many APAC B2B buyers to begin deploying their excess capital by diversifying and de-risking internationally through acquisition.

Contacts

Tim Evans

Tim Evans

Managing Director and Founder
twe@boxington.com
Alex Cooper

Alex Cooper

Assistant Director
ac@boxington.com