Considerations When Buying a Business in 2021
With interest rates at an all-time low and the pandemic presenting investment opportunities that did not exist before masks became part of our daily wardrobes, you may be thinking about buying a business. But like all things, be careful before diving in headfirst.
The Impact of COVID-19 on Mergers and Acquisitions
While the pandemic has been economically devastating for millions, it has presented others with unique opportunities to thrive. 2021 may be the right time for your company to expand or for smaller businesses to join forces to weather the storm together. If you're a risk-taker, you may also be able to acquire businesses whose ability to survive a pandemic is uncertain… at a discount, of course.
Mergers and acquisitions always offer significant opportunities. However, the pandemic has rendered these types of transactions riskier, leading to a drop in M&A activity in 2020. In the second quarter, the U.S.'s total M&A values equaled $309.2 billion, which is a 69% drop from Q2 2019.
But don't let this discourage you against M&A entirely. A large portion of this decrease is attributable to the decline in top-end "megadeals" (deals worth $5 billion-plus). In Q2 2020, only nine megadeals were conducted, totaling $78.2 billion. When you compare that to Q2 2019, with its 25 megadeals totaling $461.1 billion, it’s easy to see where most of the drop in M&A values originated.
Significant Mergers and Acquisitions in 2020
Here are some of the biggest rumored, completed, or canceled mergers and acquisitions that happened in 2020, according to U.S. News and World Reports:
After over two years, T-Mobile and Sprint finally completed their merger on April 1, 2020, making the new T-Mobile a fierce competitor to Verizon and AT&T
Morgan Stanley closed its acquisition of E-Trade on October 2, 2020, through an all-stock transaction
SoftBank was all set to acquire an 80% ownership stake in co-working business WeWork until COVID-19 made the idea of investing in shared workspaces less than appealing. SoftBank pulled out of the deal in early April, leaving the future of WeWork TBD
It has been rumored since late May that retail giant Amazon may be interested in acquiring AMC Entertainment. Though no deal has come to fruition, this rumor is one to keep an eye on
While Uber Technologies and GrubHub were dancing around the idea of a merger, they ultimately couldn't work out a deal. Grubhub quickly moved on from its potential union with Uber to merge with European delivery company Just Eat Takeaway instead
Markets Are Starting to Recover as Investor Confidence Returns
While shareholder return has varied widely by region and industry, most are now experiencing lower share-price volatility than in March and April of 2020. The upward momentum of major indices also suggests that investor confidence is returning. While several notable indices have nearly recovered to pre-COVID-19 levels, others have surpassed previous records.
Industries that are flourishing in the pandemic, according to the U.S. Chamber of Commerce, include:
Cleaning services
Meal prep and grocery delivery services
Drive-in movie theaters
Wine and liquor stores
Fitness equipment business
Landscaping and yard care
Gardening suppliers
While significant economic changes, like a global pandemic, always leave room for innovation and growth, there are substantial risks to consider as well. Make sure you do your due diligence before conducting any new deals during these unprecedented times.