Dealmaking is ‘contagious’—and Q3 saw a huge spike in M&A

M&A is currently high on the agenda of many CFOs.

In 2021, companies have embarked on a substantial deal spree, according to global advisory Willis Towers Watson’s Quarterly Deal Performance Monitor, released on September 30. The volume of deals in the last three months is the second-highest recorded for a third quarter, with 264 deals over $100 million completed in Q3 2021, the report found. This is more than double the number of M&A deals compared to the same period in 2020. And in the last nine months, almost a third of the 748 deals completed have been valued at over $1 billion, according to the firm. An all-time high of 1,041 deals was recorded in 2015, the report noted.

For more insight, I had a conversation with Jana Mercereau, head of corporate M&A consulting, Great Britain at Willis Towers Watson. Going into 2020, there was a lot of demand for M&A due to a “strong market with strong balance sheets,” Mercereau explains. “When the pandemic hit, we sort of fell into a deep freeze for a few months,” she says. “And that demand was regenerated after some of the stabilizing forces of 2020 started to play out.” So, the uptick in M&A this year is most likely an extension of pre-pandemic demand, she says. It’s not an election year in the U.S., interest rates remain low, “strategic growth now is the talk in boardrooms,” companies are selling off non-core assets—all creating an environment for M&A activity, Mercereau says.

Buyers in North America are responsible for more than half of all deals completed globally during the third quarter, the report found. “North America has always led league tables in terms of number of deals, and values of deals,” Mercereau explains. But starting about four years ago, the looming trade wars, regulatory pressure, and geopolitical events “made [companies] in America, kind of shift their focus and do less M&A,” she says. What we’re seeing now is “a new upward trend in the confidence returning to America with debt remaining cheap,” Mercereau says. 

Will the M&A momentum continue into Q4? “All my signs point to yes,” she says. Some obstacles to delivering target returns include the continued impact of COVID and rising health care costs in America, Mercereau explains. Other factors include “blurbs” that may come out of the Federal Trade Commission office or the Department of Justice, she says. “Those will all have an impact, but probably not in the fourth quarter,” Mercereau says. 

President Joe Biden signed an Executive Order in July on promoting competition in the American economy. The measure may result in increased scrutiny of large companies when it comes to M&A, Mercereau says. “My feeling is the need is to target the big tech, and maybe big health care, big pharma, some of the larger deals that will mean less competition in that environment.” Although, it could affect smaller deals as well, she says. “I think we need to keep reading the tea leaves on that one to see how it’s put into action,” Mercereau says. 

One thing she’s noted about M&A activity? “It’s contagious,” Mercereau says. If one company proceeds with the process, it’s followed by a “feeding frenzy,” she explains. And M&A sometimes happens without “a lot of logic” behind the decision making as some companies are driven by the “fear missing out,” she says.  

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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