Pivot Point

New Year, New Opportunities

As we enter 2021, two things are certain: This has been a very different recession, and the M&A market has proven its resilience. In fact, after challenging second and third quarters, Harris Williams experienced record-setting volume in the fourth quarter of 2020 and for the full year. 

Here, we share perspective on M&A in 2020 and outlook for 2021 from Bob Baltimore and John Neuner, co-heads of M&A at Harris Williams, as well as industry-specific insights from the leaders of our 10 Industry Groups in the articles linked below.

“Both the 2001 and 2008 recessions gave us some warning before they hit,” says John Neuner, a managing director and co-head of M&A at Harris Williams. “And in both cases, it took years to return to normal deal activity.”

In contrast, says Neuner, the 2020 recession arrived with much less warning—and its impacts on M&A have been much shorter in duration. “In March, everybody went into hunker-down mode. Private equity groups were focused on portfolio assessment and cash flow analysis. Our priority was helping our clients think through the impacts of COVID-19, engaging directly with CEOs and sharing insights on managing through the crisis.”

jn_1.jpgHowever, by late June, says Neuner, the M&A market was already showing signs of recovery. “Companies that were negatively impacted by COVID-19 couldn’t go to market, and everyone focused on the deals that could get done. It was a much faster bounce-back than what we had seen in previous downturns—almost like a light switch.”

According to managing director and co-head of M&A Bob Baltimore, part of the reason for the difference is the origin of this recession: “We proactively shut down large swaths of the economy in response to the pandemic. I think what we’re seeing now as those areas come back is the resilience of the consumer and their pent-up desire to get back to normal life.”

Another critical difference: the types of deals that came to market in the darkest days of the recession. Based on past experience, we predicted a surge in distressed businesses coming to market in search of liquidity. That didn’t happen, says Baltimore. “We did not see as many transactions as we thought we would driven solely by liquidity needs, or private investments in public equity (PIPEs) due to depressed valuations. The economic recovery started before those types of deals became necessary for a wider set of companies.”

“We were prepared for a pretty grim Q2,” says Neuner. “We were ready to advise our clients on capital injections and restructurings. But by June 30, it was becoming clear that owners and lenders were generally being patient and constructive as they helped impacted companies, and the need for distressed capital did not materialize. Instead, we started seeing signs of an economic recovery and the return of the M&A market.”

Neuner points out that this perspective is shaped by our client base, which tends to be dominated by the leaders of their respective sectors. “Market-leading companies generally fared better than others this year. Customers flocked toward more sophisticated providers that could help them through a volatile time, which benefited the established leaders and helped them win market share.”

bb_1.jpg“We’re also seeing the brilliance of entrepreneurs who have figured out ways to pivot and offer novel products and services that solve new challenges,” says Baltimore. “We’ve seen that time and again this year across our clients. It’s part of the reason many Harris Williams clients have done so well through 2020 and are as well-positioned for 2021 as they are.”

The fast recovery extends to private equity fundraising, says Neuner. He notes that several private equity groups raised and deployed more capital in 2020 than ever before, and have harvested more returns. Likewise, Harris Williams had a record-setting fourth quarter, nearly compensating for slowness in the middle of the year. “We would not have predicted that outcome in April,” says Neuner.

Looking forward, Neuner and Baltimore are optimistic that 2021 will be a good year for M&A as the market continues to build on the momentum of the fourth quarter of 2020, and the world exits the grip of the pandemic.

In the collection of brief articles below, our industry group leaders discuss how these dynamics have played out in their respective sectors. Some of their stories are about massive acceleration: Think telehealth, last-mile delivery, and software tied to remote working. Others are about steady, recession-proven stalwarts like infrastructure, commercial and industrial services, food and beverage, and defense spending. And at least one account describes an industry sector that has outperformed all expectations heading into the recession, rewriting its reputation in the process.

It's an exciting time to be working in our industry, and we are energized by the rapid return to record-setting deal volumes. We hope that by sharing our experiences from 2020 and outlook for 2021 in the articles below, we also share our enthusiasm and optimism for what lies ahead. As you pivot from a year of tumult into one of opportunity, we look forward to helping you make the most of what 2021 offers you.

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