2021 is shaping up to be a big year for M&A. Here are 12 hot trends to expect, from a SPAC buying frenzy to a jump in cross-border deals.

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It’s no secret that merger and acquisition activity hit some speed bumps in 2020.

But in the year ahead, bankers and investors expect that a combination of PE dry powder, macroeconomic factors, and an itch to floor the gas on M&A deals will keep a recent boom in activity going. 

So what are the big M&A trends to look out for in 2021? Insiders expect a SPAC-driven buying frenzy, energy mega-deals, more cross-border transactions, and private-equity interest in software deals to remain high, to name just a few predictions. 

More broadly, private-equity powder kegs are full of money waiting to be deployed by financial sponsors. As of this summer, private-equity funds had nearly $1.5 trillion in dry powder on hand, according to data service Preqin.

A recent survey from West Monroe Partners, a management-consulting firm, found that 70% of  respondents said they plan to acquire as many as two high-tech and software companies over the next 24 months. And 27% said they planned to make up to four such acquisitions within the coming two years.

Read more: Quarantine and social distancing in a rented boardroom: Inside S&P Global’s $44 billion deal for IHS Markit

Survey respondents were composed of 100 private-equity and corporate-development executives who already have an interest in software and technology: they had to have bought or sold three or more high-tech or software firms within the last three years.

But it’s not just software that’s seen as hot. The market for buyers and sellers is generally primed for a year of robust activity, with 53% of US-based executives saying their companies intend to forge ahead with plans to increase M&A investment in the new year, according to a survey from PwC. Experts predict continued activity in a number of sectors, ranging from healthcare to financial institutions to TMT.

We took the temperature by asking 12 bankers, investors, and consultants to lay out their 2021 M&A predictions. 

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Travel and entertainment could offer attractive deals

The coronavirus pandemic has upended media and entertainment sectors. While some have thrived — think about streaming services like Netflix — others like movie theaters have withered.

Indeed, revenue for the global cinema market is on track to fall by nearly 66% this year, according to an outlook from PwC.

But, the chief executive of one of Wall Street’s oldest boutique investment banks doesn’t see the headwinds that retail and entertainment have faced as their death knells — but, instead, one chapter in a much longer story. And that story is about to get a whole lot livelier once it’s safer for consumers to emerge from home.

“It’s all about the vaccine and what it represents — that there’s going to be normality,” Marc Cooper, CEO of the boutique firm PJ Solomon, told Insider in an interview.

“It’s all about, when do you think people are going to be comfortable to be amongst people? That’s the entire entertainment industry,” he added, pointing to recreational sectors running the gamut from sports to cinemas, cruises and hotels to restaurants and dining.

Cooper’s firm has counted among its clients retail names like Hudson’s Bay Company, Barnes & Noble, Steve Madden, and Brooks Brothers. One deal the bank advised on was Hudson’s Bay Company’s sale of shopping mall mainstay Lord + Taylor for about $100 million that closed in November 2019. 

To combat “cabin fever setting in,” Cooper predicted that consumers will be keen to spend on nights out at movie theaters that offer comprehensive experiences like in-seat dining, for example. And, although many companies took on record levels of debt to navigate the pandemic, benchmark Fed interest rates remains at rock-bottom, translating to low borrowing and carrying costs.

Now, corporate buyers have money to spend, and they may be eager to get in on sectors that are ripe for consumer activity.

As far as software, Cooper said that financial sponsors’ interest in software investments will remain sky-high in the year ahead.

“The PE appetite for software and technology is not only at historic highs, but incredible highs,” he said.

“In a very simplistic way, it’s a chain from venture, who invest in early stage companies, to the PE firms, who then purchase they mature to the strategics, who then purchase a fully built-out business that would be synergistic with their existing platform.”

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Expect a big uptick in cross-border transactions

A new regime in Washington — specifically, one that’s expected to be less adversarial toward foreign markets — could alleviate the apprehensions of some overseas buyers and spark renewed cross-border dealmaking activity, said Vito Sperduto, co-head of global M&A at RBC Capital Markets.

Cross-border transactions are likely to see a “significant uptick” once the administration of President-elect Joe Biden takes office next year, Sperduto said. While some international deals have happened in the past four years under the presidency of Donald Trump, “there already was a slowdown in cross-border transactions pre-pandemic,” he said, “and it’s just gotten worse.”

In 2021, Sperduto named two factors that will contribute to a renewal in cross-border transactions: a return to safe travel post-vaccination, and the possibility for America to declare a detente on the world stage.

Read more: Banks like Evercore and Moelis are saving tens of millions in travel and entertainment costs while dealmakers are grounded

He noted that foreign buyers might have had some uncertainties about how US regulators would have responded to their overtures and investments in the past four years.

The Trump administration has seen a fraying of international relations, from a trade war with China to a freezing-over of relationships with traditional allies in Western Europe. Policy decisions like those can have very real impacts on the mood for doing business, too.

“I would hope that the climate of isolationism improves as we go forward, given the new administration in the US and hopefully how other countries globally respond,” Sperduto said.

“Having a more predictable government review process, having less isolationism, and realizing that we have a global economy and you need to be prepared to operate as such, I think is going to drive an increase in cross-border transactions.”

Software multiples will continue to be attractive — and the pace of deals won’t slow down

The demand for high-tech solutions to support remote work this year is one reason tech firms have defied the gravity of a turbulent economy.

Mike Amiot, senior director for mergers and acquisitions at West Monroe, ascribed much of the interest in software as stemming from “enabling our ability to work remotely, to operate independently” during the pandemic.

But that’s not all: For financial sponsors looking to shell out some dry powder on software deals, “the multiples are very attractive,” he said.

And there were a number of big-ticket software acquisitions that grabbed headlines this year, like Salesforce’s plan to buy Slack for more than $27 billion in stock and cash; or the sale of Epicor, a business management software firm, from private-equity giant KKR to fellow PE firm Clayton, Dubilier & Rice. That deal closed in October.

Read more: The CEO of Epicor says the enterprise-software maker is planning a bigger M&A push once it changes hands to Clayton Dubilier & Rice in a $4.7 billion deal

“Our expectation,” Amiot said, “is that the volume and the pace of the business that we’ve experienced in the second half of this year is probably likely to continue into 2021.”

In the West Monroe survey, respondents named specific sectors as being the richest in terms of strategic targets they’re interested in: financial services and insurance (69%), retail (54%), high-tech and software (41%), and manufacturing (37%) came out among the most popular sectors drawing investor interest.

Look for a big focus on data to power sales and marketing

There’s little question that the technology, media, and telecommunications sector rode a wave in 2020. Insiders say that wave has yet to crest.

“As we look forward, we had these old analogue ways of doing business, and people have now adopted digital ways of doing business,” Ashley Evans, a managing director in TMT group at private-equity investor the Carlyle Group, told Insider in an interview.

“We look for software companies powered by data very actively in the investments that we make.”

Evans is a board member of several of Carlyle’s tech portfolio companies including HireVue, ZoomInfo, and Veritas. Technology is the largest sector for investment in terms of capital deployed at the Washington, D.C.-based Carlyle Group. The firm has deployed $33 billion in capital on tech investments since its inception, with $11 billion of that money being spent in the space in the last decade alone.

Evans’ statement about Carlyle’s interest in data-focused software firms could be a clue as to the broader investment landscape’s thinking about tech investments in 2021.

Evans named software firms’ inherent “culture of innovation” as a key driver for investors in the new year.

“I also think that that belief in the future is a big part of what propels us into the future,” she said. “As an investor looking at these software businesses, what really makes special software businesses exceptional is that culture of innovation.”

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A hybrid approach blending in-person and virtual dealmaking will be the new normal

The traditional rites of dealmaking were upended in 2020 as the conventional CEO-courting rituals shifted from the best table in the house to the virtual boardroom on platforms like Zoom, Microsoft Teams, and Webex.

Some of that may be here to stay — but not all, according to Jaret Davis, the co-managing shareholder of the Miami office of law firm Greenberg Traurig.

“I think there has been some sacrifice to the intangibles, both in terms of relationship-building as well as the intangibles of body language and negotiation,” he added. “Those can be and have been overcome, and I think that once COVID lifts, you’ll see a hybrid approach taken that gives you an optimization” of both in-person interactions and remote dealmaking.

Davis cited the kick-off meeting on deals — typically a chance for dealmakers like lawyers, bankers, and accountants to huddle in one room and lay the groundwork for a successful transaction — as something that’s likely to return to an in-person format when it’s safe.

Read more: For certain corners of Wall Street, dealmaking is happening faster than ever. That could mean a permanent lifestyle change for some investment bankers.

Aside from dealmaking style, which sectors will be hot?

One that Davis is keeping an eye out for is telehealth, which exploded in 2020. As chairman of the board of directors of Nicklaus Children’s Hospital, a health system in Florida, he said that he observed the system’s telehealth offerings soar in demand by triple digits.

Financial sponsors have developed an interest in harnessing tech companies’ data and using it to generate a profit, but telehealth companies still have some big hurdles to navigate before they get to that stage, he said.

“The entire industry is still trying to get their arms around it, particularly from a regulatory point of view, for example regulatory in terms of compensation models or in terms of privacy,” Davis explained. “Before the financial buyer community really dives in even deeper, I think they want to get some clarity on the regulatory parameters.”

We’ll see a continued frenzy in electric vehicles and auto tech SPAC deals

The red-hot SPAC community may be looking to floor the gas on big-ticket electric vehicle deals in the years ahead.

Jeff Selman, a partner at the law firm DLA Piper, named the electric vehicles and auto tech sector, alongside healthcare and fintech, as among the primary areas of interest for SPAC buyers. SPACs, or special-purpose acquisition companies, exist to merge with other corporate entities and take them onto the public markets, serving as a vehicle to raise cash without doing an IPO.

Selman told Insider that SPACs are mainly “a capital raising-event for the targets, just sort of disguised as an M&A transaction.”

He likened the energy surrounding them to echoes of the dot-com boom: “There’s a certain aspect of, sort of, the buzz happening now, where companies are realizing maybe they can become public and get access to public capital in a way that they haven’t really been able to unless they were very, very well-known brand names that were getting multi-billion dollar valuations,” he said.

Some recent examples of auto tech SPAC activity include the announced merger of auto company Electric Last Mile Solutions with Forum Merger III Corp, a SPAC that intends to take the firm public; and an announced agreement for Lightning eMotors to go public with the SPAC GigCapital 3. Those conversations were first reported by Bloomberg in November.

Looking back on 2020, there were 248 SPAC IPOs, according to SPAC Insider. The average IPO size reaching more than $334 million — a significant rise from the 59 SPAC IPOs in 2019, which were valued at an average size of $230 million.

The SPAC gold rush is unlikely to decelerate in the years ahead: SPACs could drive as much as $300 billion in M&A activity over the next two years, according to a projection from Goldman Sachs.

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Mega-mergers could upend the energy sector

Brian Salsberg, the global buy and integrate leader at Ernst & Young, laid out the argument investors are making as they contemplate sinking significant dollars into software or making strategic acquisitions of SaaS providers.

“Cloud-based software, I think, is absolutely something that is on everybody’s M&A shopping list,” he said.

Top of mind for private equity investors, he explained, is that software provides the ability to scale with “extremely low costs of goods beyond R&D, no need for physical distribution of the products,” and margins that are “just so incredible.”

“Private equity, in general, tends to care about cash flow, and there is just no better cash flow business than recurring revenue that has a limited number of fixed costs,” Salsberg added.

Salsberg also shared his outlook on consolidation in oil and natural gas.

The oil and gas sector that took a beating this year, with demand in a slump and oil and natural gas prices sinking. 

Read more: Private-equity firms fueled the US shale revolution with $125 billion. Now they face a reckoning of epic proportions as the oil market melts down.

In the year ahead, Salsberg predicted that “we could see mega-mergers of the big names, which we haven’t seen in many, many years,” he said. “The best way for them to create value is going to be around massive, massive cost savings.”

This year already saw deals including Chevron’s $4.2 billion acquisition of Noble Energy, Devon Energy’s $2.6 billion all-stock purchase of WPX Energy, and ConocoPhilips’ $9.7 billion purchase of Concho Resources. The industry is facing a reckoning as it navigates how to reconcile a reduced demand for gas and growing calls for environmentally-friendly alternatives.

“There was a lot of nervousness in the oil and gas space,” he said. “I think a lot of that pressure has come off. My sense is, there’s a view in the oil and gas space — there’s just a recognition of the move towards clean energy.”

Banks and private-equity firms will look to snap up fintechs

The Fourth of July meant more than just launching fireworks for celebratory reasons this year — it’s when fireworks started exploding in the M&A market, too.

Indeed, Independence Day “is when we really felt like it was starting to pick up again,” said Jay Langan, the East region managing partner of merger and acquisition transaction services at the consulting firm Deloitte. “We were on mothballs, to half our team was busy. And I would say by Labor Day we were sold out — and now we’re just turning away work, it’s so busy.

“It’s been a really frothy market” the likes of which he hasn’t seen since before the financial crisis, he added, noting that TMT, life sciences, and healthcare have been among the most active sectors.

Financial institutions could be in for more deal activity in the new year. Langan said that the industry continues to undergo consolidation within the registered investment advisor space, and also referred to some of the buying activity within the fintech space.

One deal that made headlines this year was Morgan Stanley’s $7 billion acquisition of asset manager Eaton Vance. Though the price tag was steep, Morgan Stanley’s CEO James Gorman batted away notions that the bank wasn’t getting its money’s worth: “I’m not ashamed to say it’s fully priced, but this is a quality asset,” he said on a quarterly earnings call in October.

And for fintechs, many of which used to provide only one service or product to banks but have since branched out into becoming digital deposit networks of their own, they should be on the lookout for corporate buyers among other banks and PE firms.

“We’re seeing that industry mature and having players of size now which weren’t there three or four years ago,” Langan said. “We’re seeing the smaller guys get sold, in some cases to banks, in some cases to private-equity.”

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Data-centers will remain red-hot

Even invisible data that lives in the cloud takes up space in the real world, too.

So, expect to see financial sponsors closely eye investments in data centers in 2021, according to Kemal Hawa, a Greenberg Traurig shareholder who concentrates his legal practice in the tech, media, and telecoms space.

“We are seeing an enormous amount of investment on the part of financial sponsors in the deployment of new data centers,” Hawa told Insider in an interview, noting that the activity has primarily been through investments as opposed to mergers or acquisitions.

“Financial sponsors love the TMT sector,” he added, “because it is not only key to the future of business, but to society as a whole, especially in view of the pandemic.”

This may only be accelerated by a growing demand for so-called “edge data centers,” which, unlike massive data facilities, are located in closer geographic proximity to the people whom they serve. One report from PwC estimates that the global market for edge data centers will more than triple by 2024, rising to $13.5 billion in 2024, from $4 billion in 2017.

This all has ramifications for physical real estate. Earlier this year, ByteDance, the China-based parent company of social media service TikTok, leased 53 mega-watts of data-center space in northern Virginia while negotiating a deal to move its global operations to the US, Insider first reported in October.

At the time, analysts estimated that that move could require hundreds of thousands of square feet in real estate space to accommodate servers.

Meanwhile, Wall Street investors have waded into the data center pool, with recent examples including Blackstone’s acquisition of majority interest in multiple data centers in Virginia whose buildings were valued in the deal at $265 million; and an announcement in October that the merchant banking division at Goldman Sachs would spend $500 million to buy up data centers in the US and abroad.

Earlier this fall, private-equity investor Apollo Global Management announced that it would buy nearly 500 cell towers and secure the sites to develop hundreds more.

“The growth in the TMT sector has been dramatically accelerated as a result of COVID,” Hawa said. “It touches on virtually the entire economy and, in every deal, there’s an important TMT component, whether it be diligence or something more core to the business itself.”

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There will be big opportunities in the alternative energy space

As we approach the end of 2020, oil prices remain low and the sector has weathered a year of volatility. Some of that uncertainty is fueling new attention on renewables.

“I think there will be a lot of very phenomenal investment opportunities within both the alternative energy and traditional energy space,” Alex Danielides, a business development director at privately-held energy services investor Iapetus Holdings, told Insider an interview.

Nevertheless, Danielides has an optimistic sense that oil prices could return to healthier levels in a post-COVID world — he expects that “we’re going to see some pretty supportive prices from oil over the next 24 months,” he said.

But 2020’s turbulent oil markets and reduced consumer demand as drivers around the world stayed indoors earlier this year will likely buoy renewable energy solutions, particularly with an incoming Biden administration. Indeed, President-elect Biden said in November that he intends to rejoin the Paris climate accord on his first day in office, after President Donald Trump announced plans to pull out of the agreement in 2017.

With revitalized focus on renewables, the International Energy Agency forecast in October that solar power is set to become “the new king of electricity” in the years ahead. Indeed, the IEA projects that under current policies, renewable sources should fulfill 80% of the growth in global electricity demand by 2030.

Under that scenario, hydropower will remain the most plentiful source of renewable electricity, with solar power emerging as “the main driver of growth” and surpassing new records each year after 2022.

Meanwhile, consolidation among oil and natural gas companies has continued with deals at the conclusion of 2020. Danielides described the intersection of consolidation and reduced capacity as “the best thing for the industry.”

Diamondback Energy announced plans in late December to acquire two firms — the Midland Basin oil and gas firm Guidon for a mix of cash and stock, and QEP Resources, entirely for stock valued at roughly $2.2 billion.

Harnessing healthcare data will be a priority

Telehealth scored some landmark victories in 2020 as consumers turned to remote solutions to meet with healthcare providers running the gamut from primary care to psychiatry. This, in turn, bred a class of companies that are now sitting on a valuable asset that they could turn into cash: data.

“I think we’ll continue to maybe see more and more momentum around that — just, how do you use the data?” said Glenn Hunzinger, US pharmaceuticals and life sciences leader at PwC US, in an interview with Insider.

Indeed, investors may be on the prowl to buy or invest in companies sitting on these data goldmines, and find ways to convert them into profit.

Though the telehealth sector had been making ripples before the pandemic broke out, the necessity for remote services created a dramatic surge in virtual doctor’s visits in the early days of the outbreak. According to the Centers for Disease Control and Prevention, there was a 154% increase in telehealth appointments at the end of March 2020 when the virus first exploded in the US, as compared to one year prior.

Read more: Inside a Carlyle-led $175 million investment in digital-healthcare firm Grand Rounds: Here’s how the deal came together, and what it says about the future of healthcare

And a report released in May by consulting firm McKinsey found that consumer adoption of telehealth services had surged from 11% of US consumers last year, to 46% in 2020. In a separate survey conducted by PwC, more than half of healthcare provider execs said they planned to offer virtual mental health/psychiatric and family medicine services in 2021.

“Everyone is trying to figure out: ‘Okay, how do we use this data in a more homogenous manner that can make sure we can drive outcomes?’ That’s going to be the biggest thing, I think, as it relates to software,” Hunzinger added.

Meanwhile, Hunzinger also looked ahead to the future Biden administration. His group is predicting that the Democratic White House will push on drug pricing, but they’re not bracing for “a drastic overhaul” in healthcare policy, he said.

“The overall thinking is the constant trend in focusing on drug pricing will persist,” he said. “Our expectation is that that will continue to be a focus of the administration.”

Expect plenty of cybersecurity firms on the market

Along with all of the other headaches that 2020 has wrought, one wellspring of problems has been a significant upswing in hacking and ransomware attacks throughout the year.

Now, one expert on cyber-security in the M&A process predicts that firms which offer security solutions could see big investments in the new year.

Plus, cyber-security firms could see a growing list of new clients, as firms seeking to be bought realize that they need to invest in shoring up fledgling security systems before strategic acquirers catch onto their weaknesses in the diligence process.

“Financial buyers are looking at that more closely because that will be a hot market moving forward,” said Nathan Beu, a director and leader of transaction services in the technology practice at consulting firm West Monroe.

“All in all, we’re seeing quite a few more cyber-security firms on the market, just because they’re poised to make quite a bit of money just because of all of the cyber-security issues that are going on right now.”

Indeed, Beu said, working from home has revealed many companies’ cyber-security vulnerabilities, through the proliferation of phishing attacks to a rise in ransomware and simply creating more access points for hackers to steal companies’ secrets.

Earlier this year, consulting firm KPMG warned that criminal activity on the Internet has ballooned during the pandemic.

Hackers are taking advantage of the coronavirus crisis to install ransomware on target computers, in part by coaxing users into digital traps by promising “critical updates to enterprise collaboration solutions” or free downloads to video conferencing systems, the firm said.

Read more: Private-equity firms’ cybersecurity defense has lagged. Here’s what makes them attractive targets — and what they can do to protect themselves, according to experts.

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