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

October 5, 2021, 10:26 AM UTC

Good morning,

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

Big deal

Although remote and hybrid work models are increasing, some employees fear working off site may lead to inequity, according to a new survey by Citrix Systems, Inc., a cloud computing and virtualization tech company. About 37% of respondents believe remote employees will be at a career disadvantage for not working out of a central office location. Of those who have this point of view, 67% think the disadvantage stems from remote workers having less interaction with colleagues and managers. “If left unchecked, hybrid models can quickly establish two classes of workers and infuse the workplace with inequity and bias,” Tim Minahan, EVP of strategy at Citrix, said in a statement. The report data is based on a survey of 1,000 U.S. office workers at companies with an IT team and more than 100 employees.

 

Going deeper

A recent study by Massachusetts Institute of Technology researchers examined "panic selling," which is described as liquidating "portions of risky assets in response to large losses." Male investors who are over the age of 45, married, and believe they have "excellent investment experience or knowledge" have a tendency to "freak out with greater frequency," according the study. The authors' research method predicts "freakout events" one month in advance. 

Leaderboard

Fran Jandjel was named EVP and CFO at COMSovereign Holding Corp., a developer of 4G LTE and 5G communication systems, effective immediately. Jandjel, who previously served as the company's financial controller, replaces Martin R. Wade III, who has stepped down from the position. She has over 25 years' experience in accounting and financial leadership, including serving as CFO. Prior to joining COMSovereign as its controller, Jandjel was a financial consultant serving multiple clients as interim CFO across sectors. Earlier, she served as VP of finance and accounting at the Cathexis Group, and the corporate controller at TAS Energy.

Kevin W. Helbing and Randy L. Patten were named Interim Co-CFOs at United Fire Group, Inc., a property and casualty insurer. Dawn M. Jaffray, EVP and CFO, has resigned from UFG. Jaffray has accepted an opportunity to serve as CFO at another company. Both Helbing and Patten previously served as controllers of UFG. Helbing joined the company in 2008, and Patten joined in 2012. The organization will conduct a search for a new CFO.

Overheard

“We’re breaking the mold. We’re centering health care where it’s never been centered before, around the consumer."

—CVS Health CEO Karen Lynch on the company's plans to turn hundreds of its drugstores into health care super-clinics, as told to Fortune.

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