M&A in 2021: ‘Uncertainties remain with reasons for optimism’

By Tony Zhang|14 January 2021
M&A in 2021

As we head into 2021, the M&A space will continue to face the uncertainties seen during 2020 but this will also evolve across 2021 as M&A activity will face a variety of key legal issues and challenges to consider in the changing pandemic environment, according to a new report. 

Global law firm Herbert Smith Freehills has launched its fourth annual global M&A report, titled “M&A in 2021: Resilient, agile and coming off mute”, revealing that 2020 has catalysed fundamental shifts in the way that the world lives, works and plays, and there is a recognition that, for the best placed, M&A can be a tool of choice for effecting a rapid transformation of businesses to address that shift. 

The report highlighted that while the strong levels of activity in some key markets have not made up for the shortfall in the overall year, if continued into 2021 it would show a very different and much swifter recovery than from previous crises. 

“In 2021, we will see many uncertainties from 2020 remain. The significant regional and global questions from last year haven’t gone away, albeit some have taken different forms as situations have played out: the impact of the presidential election in the US, China’s role and relationships across the world, what Brexit actually means for the UK and Europe,” Gavin Davies, HSF head of global M&A, said.


“However, there are reasons for optimism. There was a strategic recognition that 2020 has catalysed fundamental shifts in the way the world lives, works and plays, not least the importance of technology in all of our lives. And a recognition that, for the best placed, M&A can be a tool of choice for effecting a rapid transformation of businesses to address that shift. In the more favoured sectors, we are seeing strong liquidity in the bank market to support strategic M&A by corporate clients and would expect this to continue into 2021.”

The firm revealed some of the most important legal issues in global dealmaking for 2021 with the lessons learnt from the impact of the pandemic that are being built into the deal process and documentation, in particular around termination rights, “for whatever black swan event next comes along” and the continued rise of FDI regimes and its deployment by governments in the pandemic. 

There will also be significant shifts taking place in ESG, and the energy transition agenda in particular as a driver of M&A along with a rebound in activity in the public markets as bidders seek to take advantage of lower valuations with distressed deals that might be expected to see in 2021, when governmental support necessarily runs out and the true impact is felt in the most damaged sectors.

“On deal execution, 2020 also showed us that even the most complex deals could be done in lockdown conditions, indeed sometimes more efficiently,” corporate M&A partner Caroline Rae added.

“We also faced challenges: a need to find other ways online of connecting at a personal level and of managing training for younger team members, and the sometimes unsustainable nature of working conditions on deals from home.


“After a year when the three most popular phrases have been resilience, agility, and you're on mute, M&A seems to be emerging in 2021 on the right side of each of those trends.”

Australian M&A holding strong for 2021 

Compared across the rest of the world, the report highlighted that despite the pandemic, overall, 2020 was a strong year for M&A in Australia.

The report revealed that while there haven’t been many very large transactions (that is, over $5 billion in value), particularly in public market transactions, there has been a steady flow of M&A activity, weighted towards the second half of the year. When the pandemic became apparent in February and March, this trend became a decline in activity. At the time, there were a number of announced transactions which were pulled or renegotiated.

HSF M&A experts, Natalie Bryce, Malika Chandrasegaran and Rodd Levy revealed that the pandemic led to some legal arguments about whether sellers could hold their purchasers to their pre-pandemic transactions. 

“The argument centred on the operation of material adverse change clauses and the seller’s requirement to operate in the ordinary course of business,” they highlighted.

“None of these resulted in final court decisions, so we do not have any guidance from the courts here as to what the standard clauses require in the context of a pandemic. But it did lead to more thought being put into the drafting of agreements afterwards to clarify how transactions were to proceed in light of the risks raised by the pandemic. 

“Another big factor affecting M&A practice is the Federal Government’s attitude to foreign investment approvals. The Treasurer announced in March that the government was concerned about foreign acquirers taking advantage of the downturn caused by the pandemic to acquire important assets. 

The thresholds for scrutiny were dropped to zero, which meant that many transactions, even if they had been agreed, would be subject to FIRB approval. That has no doubt affected the market to some degree.”

For Australia, it was revealed that M&A activity in the second half of 2020 was very strong – “and the sense of pipeline activity is perhaps as strong as any other year since the crazy days of 2007.” 

“This has seen a number of public market deals and proposals, but most deals in which we have been involved have been privately negotiated M&A, often a listed company selling a business division that is no longer core. We expect this type of activity to continue,” the report found.

“ESG factors have influenced activity. This has been most notable in the renewable energy space. Typically these transactions are relatively small, but steady in number. The drivers for these transactions will only get stronger, which will result in more M&A activity in that sector. Therefore, we are optimistic that 2021 will be a good year for M&A in Australia.

M&A in 2021: ‘Uncertainties remain with reasons for optimism’
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