01. Performance

M&A to recover as investor appetite remains high

High levels of M&A activity are set to continue in 2021. While the COVID-19 pandemic has not dampened investor appetite, it presents additional complexities in deal execution outlined below:


It is expected that the M&A recovery will continue, as corporates and private investors revisit opportunities that were put on hold. The year ahead will see strong businesses take advantage of a wider pool of acquisition targets including businesses that are experiencing distress. Businesses may consider divesting non-core assets given strong valuation metrics. Our long-term view on M&A, underpinned by access to cheap capital, is that there will be an opportunity for investors to pursue transactions.

Distressed M&A

Virgin Australia, Harris Scarfe and PAS Group are only a few of the high-profile distressed businesses that appeared on the market in FY20. With the gradual tapering of COVID-19 Government support programs including insolvent trading protections, and with a potential economic slump on the horizon, an increase in distressed M&A opportunities seems likely in 2021 and 2022.


Low interest rates and demand for quality assets driven by substantial private capital dry powder will continue to put upward pressure on transaction valuations this year. Some businesses have already been negatively impacted, and consideration will be required to understand adjusted earnings and the time it will take to reach pre-COVID levels. However, other businesses will benefit from fundamental shifts in the underlying business model brought on by COVID-19. We expect there will be several businesses coming to market to take advantage of the new dynamic and we anticipate current deal activity levels to continue for the majority of the year. Acquirers will need to perform rigorous analysis to assess sustainable earnings, the viability of changes to business models and associated changes in working capital.