Sector overview

  • Anticipated ‘pandemic-proof’ sectors continue to see increased valuation multiples and faster deal flow recovery – such as Tech & Software and Business & Tech-Enabled Services for example (see graph 2 below)
  • While ‘physical’ sectors have been hardest hit such as industrials, manufacturing and industrials services, the market remains open in these areas for direct, negotiated bi-lateral transactions
  • Hardest hit has been those sectors impacted by the shift in consumer behaviour during lockdown – Consumer, Leisure & Retail a key example
  • Education and Media & Telecom activity continues, predominantly as operators diversify offerings with technology, driving an unexpectedly swift recovery of deal volumes post-lockdown
  • Importantly, we’re also seeing new opportunities emerge as the multiple pandemic ‘lockdowns’ have generated new areas of opportunity in Healthcare IT, security and supply-chain and logistics management

*Source: Mergermarket YTD as at 09/30 Note: (1) Education and Technology & Software include data that is used with other sectors [1]


Aerospace, Defense & Government Services

  • The ‘next generation digital services’ space – AI, machine-learning, cloud computing, mobility and Big Data has seen increased activity in the past few months driven predominantly by an increased adoption of these services as a result of the pandemic and the government-wide desire for technology-driven efficiencies
  • We anticipate a continued increase in tech-enabled M&A in the government services space as more opportunities for government contractors and PE firms to invest in companies prioritizing next generation digital services arise
  • With an abundance of capital in the market, private equity investors who are looking to drive consolidation and build attractive mid-size platforms, are likely to be a key driver behind M&A in the government services space in the coming months. This trend is also expected to hold true for product and technology companies across the defense and government sectors
  • That said, the possible impact of tax reforms (lower likelihood if the Republican Party maintains Senate control) and Congressional budget shifts in the next year is something both buyers and sellers could be mindful of when considering their M&A plans
  • For sellers, we believe the strength of the market today, coupled with attractive contractual visibility, will leave companies well-positioned for growth in this environment, regardless of governmental changes

Business & Tech-Enabled Services

  • As a result of the pandemic, we have witnessed an active shift away from traditional IT infrastructure, to online delivery. This move towards revenue enhancing M&A has, in our view, created an uptick in the cloud-based technology, managed service providers (MSPs) and the high-end consultancy space
  • Healthcare IT is an active area of this market, with tools such as interoperability and value based care technologies, remote learning, and an increased need for efficiencies in the market, driving demand (see graph below)
  • We have observed that IT Services businesses with digital offerings see higher valuations overall, given their perceived pandemic resilience. PE interest has regrown in Q2 onwards, following a dip earlier in the year, with interests leaning towards cloud-based tech, MSPs, outsourced software product development and digital transformation

Source: Mergermarket, YTD 30 September 2020[4]

Consumer, Leisure & Retail (food specific)

  • A movement away from food services and more towards food grocery due to global lockdown measures has, we believe, driven M&A activity in the food-retail market
  • Pre-pandemic, 90% of growth was moving towards upstarts and smaller ventures, however lockdown has shifted the focus to larger brands able to cope with logistical issues and high demand
  • As industries begin to restart in this area, we’ve seen several areas of growth across organic, protein-based and fresh foods, as well as snacking and functional beverages, such as vitamin drinks – perhaps driven by a new focus on wellbeing
  • No new deals have been launched in the US in the midst of lockdown, and any that were completed were already in process, with many being put on hold (see graph below)
  • We believe that the key focus post-Covid-19 is on profitability, or companies on a clear path to profitability. Larger brands are less likely to invest in smaller start-ups, as this has proven unsuccessful previously, and instead will likely wait until the smaller businesses are more matured – aided by private equity funds

Source: Mergermarket, YTD 30 September 2020[5]


  • Education Technology (EdTech), in our view, has seen the most change in activity within the last two quarters
  • We believe businesses with online delivery models are more in demand as a result of current circumstances and are attracting strong M&A interest, with those able to globalise their offerings expected to receive higher valuations
  • We believe that mandated training tied to licensure requirements is also strengthening this trend due to the higher efficiencies and lower costs presented through online delivery, for example in the Healthcare space
  • PE and VC interest in the EdTech space, in our opinion, is increasingly strong due to the sub-sector being viewed as a strong asset class

Source: Mergermarket, YTD 30 September 2020[6]


  • We have witnessed private equity interest, support and investment into Healthcare (specifically HCIT) has accelerated post-pandemic driving deal activity, specifically, ‘on-demand’ healthcare provision via apps, online and telemedicine are seeing increasingly interested investors (domestic and cross-border)
  • Interoperability has also been pushed to the forefront, as we’ve noticed data sharing across systems and organizations has been proven to improve patient care and lower healthcare delivery costs
  • Deal flow, in our view, continues to be strong in the US as market multiples for publicly traded companies approach multi-year highs – a trend that could continue well into next year
  • Recently, the sector has seen a flurry of high-revenue multiple strategic transactions most notably the announcement of Teladoc and Livongo[7], a combination which underscores the current strength in the market and the ongoing shift towards remote and analytics-driven care

Source: Mergermarket, YTD 30 September 2020[8]


  • We believe that deal activity across the Industrials space has varied greatly by both region and subsector over the last quarter. The drop-off in automotive and industrial manufacturing transactions we saw at the beginning of the pandemic persists, while subsectors like plastic packaging, electronic equipment manufacturing and rubber products are beginning to rebound
  • Like H1 2020, we believe the focus for many of our clients this quarter has been stabilization: preserving valuations through cash flow and reducing operational costs. In the coming months, we expect to see an increase in opportunities for PE funds, with large amounts of dry powder to invest in those considering divestitures, capital raises, and full-exits
  • In response to the disruption Covid-19 caused, we anticipate manufacturing companies will begin to accelerate plans to digitize operations as it relates to supply chain solutions and digital factories
  • While distressed M&A may make up the majority of deal activity in the sector, our view is that manufacturers focusing on advancing digital capabilities will see increased valuations in the New Year

Source: Mergermarket, YTD 30 September 2020[9]

Media & Telecom (Online Applications, e-Commerce & Marketing Technology specific)

  • PE trends have suggested a turn or decline in valuations compared to pre-Covid-19, although a reduced number of opportunities and a build-up of un-deployed capital could see that changing
  • The pandemic has seemingly bifurcated marketable opportunities into those that were ready to go-to-market and took a performance hit, or those where opportunities have been created by the necessity for change and adaptation to the ‘new normal’
  • The pandemic driven tailwinds have driven the evolution and adoption of online platforms, as B2B businesses embrace asset light business models, and B2B2C models meet buyer demand. This is coupled with tech platforms now driving targeting, marketing and data analytics to reach decision-makers and audiences
  • In our view, the current environment has made it more challenging to get premium strategic buyers to commit their focus to formal sell side process timelines with ‘uncertainty’ still hovering over decision-makers
  • Debt leverage continues to be volatile, particularly for transactional and campaign-related businesses that rely on Internet platforms to generate new business. Lenders have historically suffered with algorithm changes and/or heavy reliance on paid marketing strategies impacting their investments, but the pandemic has magnified risk tolerance

Source: Mergermarket, YTD 30 September 2020[10]

Technology & Software

  • Covid-19 accelerated certain parts of the digital economy. We believe that businesses in these areas have seen demand for their services and products grow significantly, including cloud connectivity, education, healthcare, financial services, digital marketing, and logistics services
  • We witnessed technology-oriented PE investors quickly adapt to this new environment as a response. In the infancy of the pandemic, PEs paused any new investments for their portfolio companies, instead confronting the immediate impact critical areas, including cash flow, employees, and debt covenants
  • As a result of these actions and the inability to predict cash flow, we noticed that deal volume dropped significantly. Over the summer, we believe that clients’ optimism around deal completion rose, and there was a corresponding increase in deal activity as we headed into the fall
  • While Covid-19 has had a big impact on business, there are record amounts of capital for investment and a competitive market to engage in
  • PE investors have been resilient, and after a period of adjustment to the ‘new world’, they are putting their capital to work in new investments that augment their portfolio companies or lean into the new economic forces at work - this has been especially true in the software industry, as PE focuses on taking out competitors and growing market share in preparation for more normalized times

Sources for the above graphs: Mergermarket, YTD 30 September 2020[11]


Key take-aways

  • The uncertainty of 2020 – even post-election – has catalysed new processes and new ways of working, and combined with a backlog of activity, could mean healthier deal flow levels well into H1 2021
  • While mid-market restructurings and refinancings have left limited opportunities, digital transformation and pandemic resilient businesses are driving increasing activity
  • As described above, international strategic acquirers with long-term investment horizon continue to offer bilateral opportunities, which will add to deal activity across 2021
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[1] Source: Merger Market, YTD as of 30 September 2020 *Education and Technology & Software include data that is used with other sectors*

[2-6] Total number of deals completed by sector, Mergermarket, YTD 30 September 2020

[7] Teladoc Health Completes Merger with Livongo, GlobeNewswire, 30 October 2020

[8-11] Total number of deals completed by sector, Mergermarket, YTD 30 September 2020