M & A activity has been very busy this spring. Across a wide variety of industries, we’re seeing a range of announcements from market leader combos to roll-ups of smaller, regional operations. But what’s behind this rise in activity?
Here are a few key factors driving acquisition and divestiture activity across the economy in 2021:
- Owners of smaller firms are looking to retire after their businesses’ survived the COVID-19 pandemic (or in some cases, these businesses struggled and owners did not want to rebuild).
- Certain industries with high pandemic-era sales (e.g., construction goods suppliers, home improvement distributors/retailers, packaged food companies, grocers, lawn and garden equipment and supplies firms) are flush with cash and high stock values and are looking to expand.
- Pent-up interest from the limited activity of 2020, as transactions that were planned or considered pre-pandemic were put on hold due to economic uncertainty or the difficulty of completing due diligence when you aren't traveling. Some of these previously planned transactions are now going through.
- Expectations of higher tax rates are leading some firms to cash out now or to make shifts that put them on better footing.
- SPACs (special purpose acquisition companies) are being increasingly used for acquisitions to expand existing public or private companies.
- Companies are reevaluating their business operations in the post-pandemic era and are sometimes making changes to what they see as their core operations, or are building on key capabilities that have grown over the course of the pandemic.
Freedonia Group analysts are keeping watch across a wide variety of industries for changes that portend market movements and shifts in the competitive environment.
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