Aerospace, Defense & Government Services

    • Special operations and covert activity is likely to remain at a high operational tempo, and contractors with exposure to these areas are likely to continue to benefit from increase M&A activity and valuations, as The Biden Administration withdrew US forces from Afghanistan[1] to redirect resources in competition with nation-state rivals, namely China and Russia
    • The Administration expressed plans to maintain and deploy over-the-horizon counter-terrorism capabilities in Afghanistan as needed[2], somewhat mitigating potential spending reductions and, as a result, valuations for companies with outside continental United States (OCONUS) exposure
    • As the Department of Defense seeks to maintain spending efficiency, high priority capability areas are: digital transformation (including cloud transformation); software development, security and operations (DevSecOps); simulation-based training; and advanced weapons systems (including hypersonics and unmanned systems). We believe many contractors with these capabilities are seeing both above-average revenue growth and acquisition interest at premium valuations
    • The valuation environment remains highly favorable. Public companies are trading at historically high EBITDA multiples[3] despite slow organic growth, while private equity firms are aggressively seeking to deploy large amounts of dry powder and view the visibility provided by long-term government contracts positively
    • Potential increases to capital gains taxes[4] have motivated business owners and investors to explore strategic alternatives, including exit via acquisition, before tax changes go into effect. Many processes were launched after the August holiday season and Labor Day, which resulted in a wave of opportunities in the market and bandwidth constraints in the corporate development groups of strategic buyers as well as private equity firms

Key deals

Consumer, Leisure & Retail

This edition, we discuss sub-sectors restaurants, food and beverage, and travel and hospitality:

Restaurants, food & beverage

  • M&A activity in the restaurant sector gained momentum in Q3 2021
    • As lockdown measures ease, same-store sales accelerated in July 2021 by 8.1%[5], which marked the fifth consecutive month of growth and the strongest sales in more than three years[6]. Although it decelerated in August 2021 - due to the Delta variant, negative guest sentiment and reduced restaurant sales - same-store sales still posted a 6.1% gain[7], suggesting that healthier M&A levels will resume
    • As industry sales rebounded to pre-pandemic levels in June 2021, estimates for 2021 industry-wide restaurant sales were revised upward from $731B to $789B[8]. This level represents a 20% increase from 2020 results, but is still $75b or 10% below the sales levels recorded in 2019[9]. These figures provide optimism for continued sales momentum for the year ahead
  • The strategic consolidation trend seen pre-pandemic has gained steam in recent months and is expected to be a large driver for M&A activity in the near term[10]. This consolidation allows restaurants to gain scale, leverage corporate overhead, technology and infrastructure investments, and improve supply chain management – something that a number of businesses are now seeking more than they had prior to the pandemic
  • The extremely low interest rate environment and pent-up demand for dining out are driving investors into restaurant equities. Restaurant stocks are trading at forward EBITDA multiple valuations that are more than 4x above the 10-year average[11]
  • After more than five years with little to no restaurant IPO activity, investor appetite remains strong and many private equity investors look to tap the public markets to cash out at historically high values
    • Companies such as Krispy Kreme, First Watch, Portillo’s, Dutch Bros., Sweetgreen, PF Chang’s and California Pizza Kitchen are all currently exploring IPOs

Key Deals

  • FAT Brands Inc. (NASDAQ: FAT) completed its acquisition of Twin Peaks, a chain of sports lodges known for its scratch-made food and signature draft beers, from Garnett Station Partners for consideration of $300m[12]
  • SPB Hospitality, the parent of Logan’s Roadhouse, Old Chicago and several brewery restaurants, has agreed to acquire J. Alexanders Holdings, Inc. (NYSE: JAX), owner and operator of J. Alexander’s Restaurant, Redlands Grill, Stoney River Steakhouse and Grill and selected other restaurants, for consideration of approximately $220m[13]
  • FAT Brands Inc. (NASDAQ: FAT) completed its acquisition of Global Franchise Group, a franchisor and operator of a portfolio of five quick service restaurant concepts, Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker, from Serruya Private Equity and Lion Capital, for cash and stock consideration of $442.5m[14]
  • BBQ Holdings, Inc. (NASDAQ: BBQ), the multi-brand restaurant company behind Famous Dave’s and Granite City Food & Brewery, completed its acquisition of Village Inn, a family restaurant concept and Bakers Square, a pie and comfort food concept, for consideration of $13.5m[15]
  • High Bluff Capital Partners, supported by various alternative investment funds managed by FS Investments, has agreed to acquire Church's Chicken, one of the largest quick service chicken restaurant chains with more than 1,500 units, from FFL Partners for an undisclosed consideration[16]
  • Yum! Brands, Inc. (NYSE: YUM) completed its acquisition of Dragontail Systems Limited, a provider of technology solutions for the food industry, for consideration of AU$93.5m[17]

Travel & Hospitality

  • The travel and hospitality industry is recovering, specifically in verticals such as alternative accommodations, localized travel, and remote work hospitality. Corporate travel and airlines, meanwhile, continue to be negatively affected
  • As these subsectors recover at different paces, we expect creativity to be rewarded. We anticipate M&A and fund raising activity to improve sooner in faster recovering sub verticals
  • Transaction activity exploded in Q3[18], with recovery tailwinds and vaccine optimism driving high deal volumes. We expect the travel and hospitality space will remain an active sector for both strategic and sponsor-backed transactions alike[19], [20], specifically:
    • Strategics and consolidators are evaluating acquisitions of smaller, growth-stage targets as successful niche business models are valued at a premium
    • Sponsors are looking to make long-term plays in undervalued areas with recovery opportunities on the horizon[21]
    • On the fund raising front, many earlier stage companies have begun to shift strategic focuses from business preservation to expansion as demand for growth capital grows
  • Covid-19 variants continue to slow air travel’s return to normalcy across the globe:
    • The IATA expects losses of $47.7B worldwide in 2021[22]
    • American and European air travel is expected to pace recovery, while Japanese and Australian air travel is expected to experience a slower return due to stringent local travel restrictions
    • We anticipate that airlines will maintain a focus on business recovery rather than inorganic growth as most major players witness declining demand[23],[24]
    • Analysts estimate that July 2021 was the peak in US population travel, and levels will diminish throughout Q4 as the Delta variant surges[25]
  • Experts predict the financial value of hotel and hospitality chains to continue to outweigh brand value when evaluated by acquirers, which we believe will lead to increased M&A activity for lesser known, more affordable brands. We expect financial buyers to see high return opportunities in purchasing the assets of hotels, rather than looking for value in brand acquisitions[26]
  • Travel and hospitality M&A overall should continue to see increased interest, as subsectors recover at different paces and many firms have adapted, and even thrived, in a post-pandemic world

Key Deals

  • Benchmark Global Hospitality and Pyramid Hotel Group Announce Merger for an undisclosed consideration[27]
  • Inspirato announce merger with Thayer Ventures Blank Check Merger[28] for a consideration of $1.1 Billion
  • Lakestar announce they will take HomeToGo public for a consideration of $1bn[29]
  • Oyo raises $660m in funding[30]
  • Softbank announce investment in Yanolja[31], for a consideration of $1.7bn
  • Vacasa announce a SPAC mergers[32], for a consideration of $4.5bn
  • SpotOn raise $300M at a $3.15B valuation and acquire Appetize[33]
  • Breeze Airways raise $200m in new funding[34]
  • Hopper raises $175M[35] in new funding
  • Blackstone sell Vegas hotel Cosmopolitan[36], for a consideration of $5.65bn

(Source: ‘Total number of deals completed by sector’, Mergermarket, 30 September 2021)


This edition, we focus on transportation, supply chain and logistics:

  • M&A activity in the trucking sector continues to be strong in 2021, driven by a combination of nearly record-low interest rates, technology applications and perhaps the strongest freight market for carriers in a generation[37]
  • Another driving force is the inability of carriers to expand organically because it is nearly impossible to add qualified drivers[38], therefore acquisition is the quickest way to expand a fleet without the cost of buying additional trucks and finding qualified drivers. Expectations for continued consolidation / deal activity remain strong
  • Freight demands and supply chain challenges continue to push freight rates and demand for logistics and transportation solutions. Private equity firms continue to explore opportunities in the broader supply chain management sector, including 3PL and other logistics solutions providers as evidenced by Echo Global Logistics’ recent announcement of its acquisition by The Jordan Company[39]
  • Operational challenges, including labor shortages[40] (drivers, sorters, warehousing etc), port and railyard congestion[41] and increased demand for faster freight delivery[42], continue to plague operators. This was seen in FedEx’s recent lowering of earnings guidance due to these continued challenges despite a strong demand for the service[43]

Key Deals

(Source: ‘Total number of deals completed by sector’, Mergermarket, 30 September 2021)

Real Estate

  • Consolidation across the real estate sector is set to continue[46], as key US players aim to become a one-stop shop for home buying and selling
  • Residential deals in the private market hit a record deal value high of $6.2bn[47], as investors turn away from uncertain commercial real estate, focusing on end-to-end solutions revolving around homeownership. Investors' interest in one-stop shops for residential transactions are shown in the key deals section below
  • Despite an uneven recovery from the Covid-19 pandemic in the commercial market compared to single or multifamily market, strategic and financial investor interest in digital solutions continues with the promise of life after Covid
  • With Generation Z making their entrance to the rental market, property managers are working towards digitizing the resident experience to stay competitive[48], which we believe will drive deals associated to digitalization even more
  • We expect the real estate tech M&A activity to remain strong for the rest of the year, as pandemic uncertainty continues to drive innovation and the real estate market remains active[49]

Key Deals

  • Homeward increased valuation by 13X to $837M[50], raising $371M in May 2021
  • Flyhomes stepped up its valuation by five-fold to $830M[51], raising $150M in June 2021

Technology & Software

This edition, we discuss the infrastructure software space:

  • The market for infrastructure software has experienced a fundamental shift in the past 18 months, driven by the adoption of public cloud resources that are disrupting large established market segments and opening up new, fast-growing ones. 451 Research estimates that global spending on public cloud infrastructure and platform services will grow at a 13.9% CAGR to $91.7 billion in 2024[52], which we believe will drive M&A in the sub sector
  • We expect deal activity associated with cloud adoption to increase, as future, ongoing demand for cloud adoption will continue to grow as businesses seek to utilize emerging technologies that fully leverage the cloud as a platform. The rise in application containers as a new architecture for building and deploying applications suited for cloud infrastructure illustrate this trend. 451 Research predicts that spending on tools to optimize container applications was already $3.6 billion in 2021 and will grow to over $8b in 2025[53]
  • Another factor driving deal flow is the growing demand driven by digital transformation plans to leverage technology for new business models, new products and services, and drive business growth[54]
  • We believe M&A activity in new large, rapidly growing sub-sectors will increase, as they are emerging to address fundamental issues that enterprises face as adoption of cloud expands. Such challenges include a lack of specialized skills, exponential increases in complexity and dynamism of IT environments and compliance requirements. Strong long-term growth prospects for public companies addressing these issues has driven up valuations in the sector

Key Deals

(Source: ‘Total number of deals completed by sector’, Mergermarket, 30 September 2021)