Wachtell Lipton: Mergers and Acquisitions—2021

Deal activity (or inactivity) for much of 2020 was driven first by the unprecedented uncertainty and massive global shutdown of the early days of the Covid-19 pandemic, and then propelled by rising markets and confidence as animal spirits anticipated the light at the end of the tunnel, even against a backdrop of political instability and record levels of infection and death.  Indeed, for M&A, 2020 was a tale of two halves:  the second lowest first-half global M&A volume in the last decade (approximately $1.2 trillion), followed by a 90% increase in the last six months (to approximately $2.4 trillion), for a total deal volume of $3.6 trillion – a relatively modest decline, all things considered, from $3.8 trillion of total volume in 2019.  The second quarter witnessed a striking nadir in activity, with less than $120 billion of M&A announced in April 2020, while the fourth quarter saw remarkable volume of $1.3 trillion, a 31% increase over the same period in 2019 and 33% higher than the average fourth quarter volume over the last 10 years.  The second-half rebound was due in part to a number of large transactions across a range of industries, including AstraZeneca’s $39 billion acquisition of Alexion, Salesforce’s $27.7 billion acquisition of Slack, 7-Eleven’s $21 billion acquisition of Marathon’s Speedway business, Gilead Sciences’ $21 billion acquisition of Immunomedics, Siemens Healthineers’ $16.4 billion acquisition of Varian Medical Systems and ConocoPhillips’ $13 billion acquisition of Concho Resources, as principals and their advisors adapted to remote and virtual dealmaking to agree on and execute transactions.

U.S. targets were involved in 10 of the 20 largest transactions in 2020, with total volume for deals involving U.S. targets amounting to $1.4 trillion, down from $1.8 trillion in 2019.  Mega-deals continued a three-year decline, with 36 deals globally over $10 billion in 2020 compared to 44 in 2019 and 53 in 2018, and transactions over $25 billion dropping from 19 deals globally in each of 2019 and 2018 to just 10 in 2020.  As in 2019 and 2018, the technology sector continued to drive broader deal activity and represented the largest sector for M&A volume.  The financial, energy, industrials and healthcare sectors followed.  Global private equity deal volume in 2020 increased approximately 22% over 2019, ending the year at approximately $582 billion.  Meanwhile, publicly announced hostile and unsolicited M&A declined significantly, falling to $152 billion in 2020, from $306 billion in 2019.

While the second half of 2020 saw a significant rebound in M&A that has continued into the beginning of 2021, the uncertainty regarding the duration and effects of the Covid-19 pandemic remains, with ongoing economic challenges presenting dealmakers with both risks and opportunities as the world readies to move beyond the pandemic.  Companies with strong balance sheets are dusting off prior acquisition deal planning while assessing new opportunities in the wake of the pandemic, while those that operate in industries or markets that have been most affected by Covid-19 or otherwise fallen out of favor may be considering divestitures, restructurings and other strategic transactions to adapt to new circumstances.  In addition, the significant changes caused, or rapidly accelerated, by the response to Covid-19 – including everything from consumer shopping habits to the role of technology in the workplace, from energy consumption patterns to real estate utilization, and so much more – are likely to be significant factors in M&A activity over the coming year and beyond.

We review below some of the key themes that drove M&A activity in 2020 and our expectations for 2021.

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