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Different sectors in M&A market have had very different pandemics

Majority have been adversely impacted but some have benefitted from Covid crisis

Photograph: Getty Images

Photograph: Getty Images


Despite the widespread economic devastation wrought by Covid-19, some sectors have not only survived but thrived. It has had an uneven impact, say many analysts in the M&A field, who predict that 2021 will see this pattern repeated.

The Mergermarket Global & Regional M&A Report 2020 notes that when the pandemic first impacted deal-making, the sectors that held up best were pharma, medical, biotech and technology/media. Most other sectors experienced a significant decline in the first half of 2020 but since then, there has been a strong recovery in business services, energy, mining and utilities, industrials and chemicals and real estate, the report states.

According to Éanna Mellett, head of corporate with DLA Piper Ireland, while the vast majority of businesses have been adversely impacted, “for some the impact has been minimal and for others it has been positive. Those businesses already riding the wave of technological or societal change have seen that change accelerate and the value of their businesses grow. We have seen this reflected in the market.”

Different sectors have had very different pandemics, agrees Alan Kelly, director of Focus Capital.

“Healthcare and technology have performed strongly through 2020 and into the early part of 2021. We have completed a number of transactions in medical supply and distribution and also digital health. On the technology side, we have seen strong activity in software as a service business and also artificial intelligence companies.”

As 2021 begins, Focus Capital sees a strong deal flow in renewable technologies, medical distribution, technology, and compliance. “We see these sectors as being robust due to macro factors such as a move to impact investing, large healthcare budgets and growing regulatory environment,” says Kelly.

Remarkably resilient

Richard Duffy, director in Corporate Finance with BDO, says 2020 was a “stop-start year” for M&A due to the virus, “but proved in the end to be remarkably resilient for deal-making considering all the uncertainty”. As expected, there was greater activity within those sectors least impacted by the virus; technology, healthcare, biotechnology and life sciences, as well as financial services which were the cornerstone sectors for deal activity in the mid-market space.

“For example, despite Covid-19, we saw the continued consolidation of the nursing and care home sector with French group Emera acquiring a 70 per cent stake in Irish nursing homes operator Virtue, Spanish care home operator DomusVi purchasing the trading business of Trinity Healthcare and Cardinal Capital buying Mowlam Healthcare,” Duffy notes.

In contrast, media and “bricks and mortar” have had a very challenging year, Kelly says.

“Food service businesses also have obviously struggled, particularly where they are exposed to corporate catering. Some manufacturing sectors have also been hit badly.”

Other sectors impacted by the lockdown restrictions and particularly where discretionary spend is involved were most negatively impacted, such as hospitality/leisure, tourism and travel, and the motor industry, says Duffy. He suggests there will likely be some “forced” M&A transactions in these sectors as companies who will not be able to recover from the crisis start to look for buyers. “This will probably occur towards the second half of the year when Government supports are reduced and pressure comes from funders for loans to be serviced and/or repaid.”

Generally, Duffy sees a similar outlook for 2021, with the strongest sectors likely to have the most deal activity and continuing to attract strong interest from international buyers in both trade and private equity. Overall, technology will remain one of the most active M&A sectors, as buyers look to secure technologies to support their growth plans and/or help protect themselves from disruption ongoing in the market, he says.

“Covid has proven companies need advanced digital capabilities that they cannot replicate in-house in order to remain competitive or indeed deliver growth. The ongoing fallout of Covid-19 has accelerated the requirements for digitalisation by revolutionising the way companies operate, forcing them to completely rethink the way they work and service customers.”

Mellett echoes Duffy, saying technology has been the most active sector for DLA Piper Ireland, accounting for more than a fifth of their post-Covid-19 transactions. “The pandemic has required businesses to look at their business models and how they need to adapt to the new world in which we live. This has caused many businesses to seek to accelerate their focus on digitalisation and use of technology, making technology companies attractive to buyers,” he says.

The consumer goods, food and retail sector has also seen significant activity, says Mellett. “However, much of this has been in the food manufacturing sub-category of this sector, as opposed to food service, and there has been little retail M&A activity other than in distressed scenarios.”

Duffy also expects to see an increase in activity in M&A within the agri/food sector for 2021. Although activity was somewhat muted in this sector during 2020, already there are some potentially high-profile deals in play: Kerry Group Plc is reportedly considering strategic options for its consumer food division and Capvest is thought to be considering the sale of Valeo foods. “Both will attract strong international interest from trade and private equity buyers,” he says.

Supply chain problems

Some M&A activity will be driven by companies looking to remedy supply chain problems and Duffy says there is every chance we will see cash-rich retailer/food groups moving into the supply chain via acquisition, in order to procure certainty of supply for some food products. Companies looking to diversify and develop an international footprint, as they seek out new customers and markets, will also be ripe for activity.

“Irish companies will also look to the UK market for opportunities – 33 per cent of our food/drink exports go to the UK. Acquisition is the quickest way to secure new customers and products and ensure market entry etc. Similarly, UK and international players will continue to look to high quality Irish food and drink companies, who can provide EU market access to its 380 million population.”

But the virus has had a profound effect on consumer purchasing, and food and drink businesses will be trying to understand if these changes are permanent and if they need to adjust their businesses accordingly in a post-Covid-19 world, he adds.