July 26, 2021 Global mergers and acquisitions decrease in 2020, but 2021 is looking favorable for M&A The COVID-19 pandemic has had far-reaching individual and business impacts, including on M&A activity. Global M&A decreased 9.7% to $2.2 trillion in 2020 as compared to $2.4 trillion in 2019. Both within-country and cross-border M&A activity also ticked down in 2020, with cross-border M&A dropping by $141 million (17.4% decline) and within-country M&A dropping by $92 million (5.8% decline), when compared to 2019. Global M&A decreased approximately $233 billion in 2020, from a 2019 total of $2.4 trillion. The first three months of 2021, however, are showing signs of M&A recovery, with significant global M&A activity having taken place in January. Key findings from our recent study of M&A activity include:
Global M&A As shown in Figure 1, global M&A totaled approximately $2.2 trillion in 2020. Approximately 69% of that ($1.5 trillion) was within-country M&A and 31% ($669 billion) was cross-border M&A.1 Global M&A has fluctuated greatly since 2004 but has generally followed the global business cycle, rising along with economic growth and falling as growth ebbed. Global M&A peaked in 2007, with over $3.3 trillion of transactions. Cross-border M&A also peaked in 2007, with just over $1.3 trillion of transactions. Cross-border M&A fell significantly during the 2008–2009 recession, reaching its lowest point in 2009 at $338 billion, which was approximately one-quarter of its peak two years earlier. Within-country M&A also declined, but only to approximately 45% of its 2007 peak. Since then, M&A has generally trended upward. Relative to the 2009 low of $1.2 trillion, global M&A has been above $2.0 trillion since 2014, but with significant variation from year to year. Global M&A was approximately $2.8 trillion in 2016, $2.4 trillion in 2017, $2.7 trillion in 2018, 2.4 trillion in 2019, and $2.2 trillion in 2020. Since 2015, cross-border M&A has hovered close to $1.0 trillion, except 2019 and 2020, when it decreased to $0.8 and $0.7 trillion respectively. In contrast, within-country M&A totaled approximately $1.6 trillion in 2016, $1.5 trillion in 2017, $1.7 trillion in 2018, $1.6 trillion in 2019, and $1.5 trillion in 2020. Figure 1. Global M&A, 2004–2020 US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2021. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Figures may not sum due to rounding. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Global M&A in Q1 2021 Global M&A took off in Q1 2021. Cross-border M&A was 30.0% higher ($197 billion) in Q1 of 2021 than in Q1 of 2020 ($151 billion). Similarly, within-border M&A was also 28.2% higher ($354 billion) in Q1 2021 than in Q1 2020 ($227). Overall, global M&A in Q1 2021 outperformed the same period in 2020 by nearly 28.8%. Accelerating vaccine administration, rising corporate confidence, and consolidation of large actors have fueled this growth. Figure 2. Global M&A, comparison of M&A in Q1 of 2020 and 2021 US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2021. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. While there has been a sharp increase in global M&A activity in Q1 of 2021, a few countries have accounted for much of the growth. The top targets include (1) the United States (29%), (2) the UK (23%), (3) Germany (7%), (4) Singapore (5%), and (5) Canada (4%). Together, these top five target countries account for more than two-thirds (67.7%) of all cross-border M&A. The top acquirers include (1) France (28%), (2) the United States (27%), (3) the UK (7%), (4) Japan (7%), and (5) Canada (5%). These top five acquirer countries account for nearly three-fourths (73.5%) of all cross-border M&A. Figure 3. Cross-border M&A in Q1 2021, top targets and acquirers Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2021. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. A few select industries led the increase in cross-border M&A in the first quarter of 2021 as compared to the first quarter of 2020. Figures 4 and 5 display the industry composition of cross-border M&A in the first quarter of 2021 and 2020. Cross-border M&A by target industry (Figure 4) and by acquirer industry (Figure 5) each sum to the total cross-border M&A amount displayed in Figure 2 for 2021 ($197 billion) and 2020 ($151 billion). The composition of target industries, shown in Figure 4, illustrates that the increased cross-border M&A in 2021 Q1 is driven by industrials ($45 billion in 2021 Q1; $17 billion in 2020 Q1), financials ($25 billion in 2021 Q1; $9 billion in 2020 Q1), and retail ($17 billion in 2021 Q1; $10 billion in 2020 Q1). Other target industries with increased cross-border M&A in 2021 Q1 are media and entertainment ($7 billion in 2021 Q1; $3 billion in 2020 Q1), materials ($20 billion in 2021 Q1; $15 billion in 2020 Q1), telecommunications ($5 billion in 2021 Q1; $2 billion in 2020 Q1), and consumer products and services ($6 billion in 2021 Q1; $5 billion in 2020 Q1). Target industries that experienced decreased cross-border M&A activity include high technology ($24 billion in 2021 Q1; $25 billion in 2020 Q1), health care ($21 billion in 2021 Q1; $24 billion in 2020 Q1), consumer staples ($2 billion in 2021 Q1; $5 billion in 2020 Q1), real estate ($10 billion in 2021 Q1; $15 billion in 2020 Q1), and energy and power ($14 billion in 2021 Q1; $22 billion in 2020 Q1). Figure 4. Cross-border M&A, by target industry US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2021. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. The composition of acquirer industries in Figure 5 illustrates that the increased cross-border M&A in 2021 Q1 was driven by industrials ($38 billion in 2021 Q1; $8 billion in 2020 Q1), financials ($71 billion in 2021 Q1; $56 billion in 2020 Q1), and retail ($21 billion in 2021 Q1; $9 billion in 2020 Q1). Other target industries with increased cross-border M&A in 2021 Q1 are high technology ($12 billion in 2021 Q1; $7 billion in 2020 Q1), materials ($19 billion in 2021 Q1; $4 billion in 2020 Q1), telecommunications ($3 billion in 2021 Q1; $0 billion in 2020 Q1), and energy and power ($9 billion in 2021 Q1; $8 billion in 2020 Q1). Acquirer industries with a decrease in cross-border M&A include media and entertainment ($1 billion in 2021 Q1; $2 billion in 2020 Q1), consumer products and services ($2 billion in 2021 Q1; $5 billion in 2020 Q1), consumer staples ($2 billion in 2021 Q1; $6 billion in 2020 Q1), health care ($13 billion in 2021 Q1; $20 billion in 2020 Q1), and real estate ($6 billion in 2021 Q1; $17 billion in 2020 Q1). Figure 5. Cross-border M&A, by acquirer industry US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2021. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Industry composition of cross-border M&A Tables 1 and 2 show the industry composition of cross-border M&A in 2019 and 2020. Cross-border M&A by target industry (Table 1) and by acquirer industry (Table 2) each sum to the total cross-border M&A amount displayed in Figure 1 for 2019 ($809 billion) and 2020 ($669 billion). While the composition of target industries changes from year to year, industry shares have tended to be relatively stable, and no single industry has dominated. Between 2019 and 2020, the share of cross-border M&A in health care decreased from 16% to 11%, in energy and power from 11% to 10%, in financials from 9% to 8%, in real estate from 10% to 7%, in materials from 13% to 6%, in media and entertainment from 8% to 4%, and consumer products and services from 5% to 4%. The share of cross-border M&A increased in consumer staples from 4% to 16%, high technology increased from 10% to 15%, in industrials from 10% to 11%, and in telecommunications from 1% to 6%. The share of cross-border M&A in retail remained the same (3%). Overall, the top target industries for cross-border M&A in 2020 were consumer staples ($110 billion; 16%), high technology ($97 billion; 15%), health care ($75 billion; 11%), industrials ($71 billion; 11%), and energy and power ($67 billion; 10%). The composition by acquirer industry, as shown in Table 2, differs significantly from the target industry composition. The financial industry made up 39% of cross-border M&A in 2019 and 32% of cross-border M&A in 2020, dominating M&A activity. Overall, the top acquirer industries for cross-border M&A in 2020 were: financials ($213 billion; 32%), consumer staples ($118 billion; 18%), high technology ($58 billion; 9%), health care ($52 billion; 8%), and telecommunications ($41 billion; 6%). Table 1. Cross-border M&A, by industry of target company US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2021. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Figures may not sum due to rounding. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Table 2. Cross-border M&A, by industry of acquirer company US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2020. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Figures may not sum due to rounding. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Country composition of cross-border M&A Figure 6 displays total 2020 cross-border M&A activity by country, which is the sum of all cross-border M&A deals in that country, including both acquirers and targets. Major developed economies tend to dominate overall cross-border M&A activity. The 10 countries with the most cross-border M&A activity in 2020, listed by volume of activity, were (1) the United States, (2) the UK, (3) Netherlands, (4) Germany, (5) Japan, (6) Canada, (7) Switzerland, (8) Australia, (9) France, and (10) China. The top five countries accounted for 59% of cross-border M&A activity. The top two countries — the United States and the UK — accounted for 24% and 13% of cross-border M&A activity, respectively. Figure 6. Total cross-border M&A activity by country, 2020 US$ billions Note: Total cross-border M&A activity is defined as the sum of all cross-border M&A in which a country was home to the acquirer or target. Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2020. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Table 3 shows the breakdown of the largest target and acquirer countries in cross-border M&A in 2019 and 2020. There is notable overlap between the target and acquirer countries and the groupings across years. The top five target countries for cross-border M&A in 2020 were (1) the United States (25%), (2) Netherlands (16%), (3) the UK (9%), (4) Germany (8%), and (5) Australia (4%). Target companies in these five countries accounted for more than half of cross-border M&A. Similarly, the top five acquirer countries for cross-border M&A in 2020 were (1) the United States (23%), (2) the UK (17%), (3) Germany (10%), (4) Japan (7%), and (5) Canada (5%). Acquirer companies in these five countries account for 62% of cross-border M&A. Note that the United States, the UK, and Germany are in both the top five targets and acquirers. There is also considerable overlap in the top-acquirer countries between 2019 and 2020, with eight countries in the top 10 both years. The relative position of these countries varies, with the United States, the UK, Canada, and Japan in the top five for both 2019 and 2020. Similarly, the target country grouping also has considerable overlap, with seven countries in the top 10 across both years. The United States, UK, and Germany are in the top five target countries each year. Table 3. Largest target and acquirer countries for cross-border M&A US$ billions Note: Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2020. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Figures may not sum due to rounding. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Table 4 displays the countries with the largest volume of net cross-border M&A activity in 2020. For a given country, net cross-border M&A is total cross-border M&A in which the acquirer is in that country less total cross-border M&A in which the target is in that country. There is significant year-to-year variation, with countries such as Germany switching from being a net target in 2019 to a net acquirer in 2020. Germany went from having -$8 billion of net cross-border M&A in 2019 to $8 billion of cross-border M&A in 2020. Other countries, while remaining either net targets or net acquirers in both years, fluctuated significantly in magnitude of acquisitions. The deal volume for both Japan and the Netherlands fluctuated more than $50 billion between 2019 and 2020. Table 4. Net cross-border M&A, top net acquirers and targets US$ billions Note: Net cross-border M&A is total cross-border M&A in which companies in a country are acquirers less total cross-border M&A in which companies in a country are targets. Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2020. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Figures may not sum due to rounding. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Figure 7. Net cross-border M&A activity by country, 2020 Billions of US dollars Note: Net cross-border M&A is total cross-border M&A in which companies in a country are acquirers less total cross-border M&A in which companies in a country are targets. Thomson Reuters M&A database, from which this information was collected, is frequently updated, and the data are therefore subject to change. Data were accessed March 26, 2020. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer's ultimate parent. Source: Ernst & Young LLP analysis; Thomson Reuters M&A database. Conclusion To remain competitive in an ever-changing global economy, companies must be willing to rapidly adjust their operations and be nimble when deal opportunities present themselves. Business restructuring through divestment of business units and acquisitions of others is one-way companies can respond to global change and improve their ability to compete. Mergers, acquisitions, divestitures, spin-offs, and other activities that can change the scope and focus of a company's business are all examples of business reconfigurations. These are important tools for creating greater efficiencies and better customer service, and for promoting high-growth sectors in a fluid global marketplace. M&A can often produce economic benefits for both companies involved. Capital and business processes can be combined and reconfigured in more efficient ways. This may provide financial advantages to both the acquirer and target. For example, cross-border investment could stimulate productivity gains in target countries, while the return on the investment would yield income to acquiring countries. Cross-border investment also provides access to local markets, new suppliers, workforce capabilities, and capital markets, improving a company's competitive edge both locally and globally. ———————————————
——————————————— 1 Within-country M&A refers to transactions involving companies located in the same country — for example, a French company acquiring another French company — while cross-border M&A refers to transactions in which one company acquires another based in a different country, for example, a French company acquiring a German company. | |||||||||
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