Gavin Davies | Head of Global M&A | Herbert Smith Freehills | mail me |
2020 started off with significant economic and geopolitical uncertainties, and then the pandemic upended everything, for everyone. Many unknowns remain, not least as to the true extent of the long-term economic damage, and as to who will be the winners and losers when the world properly emerges from lockdown.
In 2021, we will see many uncertainties from 2020 remain. The significant regional and global questions from last year haven’t gone away, albeit some have taken different forms as situations have played out: the impact of the presidential election in the US, China’s role and relationships across the world, what Brexit actually means for the UK and Europe. However, there are reasons for optimism.
Fundamental shifts
There was a strategic recognition that 2020 has catalysed fundamental shifts in the way the world lives, works and plays, not least the importance of technology in all of our lives.
Mergers and Acquisitions (M&A) can be a tool of choice for effecting a rapid transformation of businesses to address that shift.
In the more favoured sectors, we are seeing strong liquidity in the bank market to support strategic M&A by corporate clients and would expect this to continue into 2021. But the second half of 2020 was a story of agility, resilience and opportunism in the M&A markets.
Strategic focus shifted to portfolio management, and to emerging stronger into opportunities beyond lockdown.
While the strong levels of activity in some key markets has not made up for the shortfall in the overall year, if continued into 2021 it would show a very different and much swifter recovery than from previous crises.
The new normal
2020 showed us that even the most complex deals could be done in lockdown conditions, indeed sometimes more efficiently.
We also faced challenges: a need to find other ways of connecting online at a personal level and managing training for younger team members; and the sometimes unsustainable nature of working conditions on deals from home.
We have launched our 4th annual global report, titled ‘M&A in 2021: Resilient, agile and coming off mute‘. The report also includes local insights across different regions and markets.
Our report considers the most important legal issues in M&A against this backdrop. We consider what lessons we have learnt from the impact of the pandemic that we are building into deal process and documentation, in particular around termination rights, for whatever black swan event next comes along.
We look at the continued rise of FDI regimes (latterly in the UK’s significant new legislation) and its deployment by governments in the pandemic. We reflect on the significance of shifts taking place in ESG, and the energy transition agenda in particular as a driver of M&A.
Summary of the report
We consider the rebound in activity in the public markets as bidders seek to take advantage of lower valuations. And we look to the distressed deals that we might expect to see in 2021, when governmental support necessarily runs out and the true impact is felt in the most damaged sectors.
We examine some of the most important legal issues in global deal-making including:
- the lessons learnt from the impact of the pandemic that are being built into deal process and documentation, in particular around termination rights, for whatever black swan event next comes along;
- the continued rise of FDI regimes and its deployment by governments in the pandemic;
- the significance of shifts taking place in ESG, and the energy transition agenda in particular as a driver of M&A;
- rebound in activity in the public markets as bidders seek to take advantage of lower valuations; and
- the distressed deals that we might expect to see in 2021, when governmental support necessarily runs out and the true impact is felt in the most damaged sectors.
“On deal execution, 2020 also showed us that even the most complex deals could be done in lockdown conditions, indeed sometimes more efficiently. We also faced challenges: a need to find other ways online of connecting at a personal level and of managing training for younger team members, and the sometimes unsustainable nature of working conditions on deals from home.“
– Caroline Rae, Corporate M&A partner at Herbert Smith Freehills
After a year when the three most popular phrases have been resilience, agility, and ‘you’re on mute’, M&A seems to be emerging in 2021 on the right side of each of those trends.
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