As the COVID-19 pandemic forces companies to sink or swim in unchartered territory, and business leaders across the U.S. vary in their optimism for the near-term future, there’s one activity that appears to be universally positive. Acquisitions are pointing toward a record quarter as companies look to expand, or recalibrate their businesses in a market awash with cash.
Almost 80% of business leaders have some degree of confidence in the U.S. economy in 2021, with 23% feeling “very” or “extremely” confident, according to a business outlook survey conducted by The Business Journals in 10 U.S. markets and sponsored by CIBC. Nearly 1 in 5 said they thought they might seek financing to pursue an acquisition this year.
CIBC clients across the U.S. are looking for deals amid vast amounts of uninvested capital driving valuation multiples to new heights, according to the team at CIBC Cleary Gull, which provides merger and acquisition advisory services in the U.S.
“The mega deal market has historically served as a leading indicator for middle market deal volume,” the CIBC Cleary Gull team said in its fourth quarter Market Monitor. “Under this theory, the November 2020 record of 41 $1.0 billion-plus transactions predicts strong middle market deal volume in 2021. The tone of the middle market is that private equity firms and investment banks are bullish about Q1 deal volume, which also portends robust deal announcements in mid-2021.”
In the private equity community, deals started to “kick back in and kick back strong” in August 2020 after going silent in April, May and June amid a pandemic in full swing, said Jim Nickel, Managing Director and Pennsylvania Region Head for CIBC U.S. Commercial Banking. “People say deal flow is strong and 2021 is poised to be a blast-off year because those who had paused processes, who didn’t start in 2020 because they saw was what was happening, are ready to go.”
The Rust Belt has historically fared somewhere in the middle when large economic events such as a recession happen, making the M&A activity in western Pennsylvania somewhat of a surprise.
“We’ve never had outrageous highs in good times or incredible lows in bad times,” Nickel said. “But the sense from clients is they very much want to invest.”
Meg Fisher, Managing Director and St. Louis Market Head, said that some of her St. Louis-based clients have been able to thrive because they identified the right acquisition opportunities.
“There were some businesses on which the pandemic had very little impact, and others where it actually created opportunities,” she said, which may explain why 57% of St. Louis business leaders are “very” or “extremely” confident in their business success this year, with an additional 34% “somewhat” confident, according to the survey.
In the Southwest, ingenuity is top of mind for CIBC clients.
“The ones investing are trying to innovate — they know they have to get bigger, faster and stronger,” said Greg Leftwich, Managing Director and Southwest Region Head in Dallas. “They’re trying to accelerate — the pandemic makes it harder to do that fast, and a lot are looking outside of North America for part of their expansion.” Nearly a third of Dallas-area businesses said they would seek financing to expand in new markets in 2021, according to The Business Journals and CIBC survey.
Businesses that were strong coming into the pandemic are at a particular advantage when going to market, as they’re in a position to find healthy companies at a discount, said John Falb, Managing Director and Upper Midwest Region Head. Some 46% of business leaders in Minneapolis are “very” or “extremely” confident in their business success in 2021, according to the survey.
“The vast majority of clients in the Twin Cities are doing well,” he said. “Those people were very thoughtful — they reacted quickly and they tightened the belt and they didn’t wait around to do it.”
For CIBC clients, it all comes down to have a close, trusted relationship with your commercial banking team.
“We have the capital to support our clients who are looking to build and grow their businesses through acquisition or expansion,” said Bob Frentzel, President, CIBC U.S. Commercial Banking. “The sooner we can understand the client’s ambitions, the better positioned we are to deliver the right solutions — whether that’s bank financing, access to the debt capital markets or M&A advisory services.”
