Last year, M&A activity largely followed other business cycles, which experienced historic oscillations in response to the COVID-19 outbreak. So a white-hot start to the year came to a screeching halt in March, only to pick up some midyear as virus cases leveled out and as new pandemic protocols normalized. By the end of the year, M&A activity resembled a fairly normal year. We spotted some bargains among the transactions, but mostly we saw healthy sellers getting fair prices that ignored the pandemic, at least for the purposes of valuation.

That momentum from the end of last year, paired with increasingly positive news on virus containment, leaves us an optimistic outlook for 2021. To give a little more insight into why, here are five predictions for what we expect to see in the year ahead.

In addition to this article, we published six industry-specific deep dives. Click the following links to read about audiology, dentistry, home health, HVAC services, janitorial services, and landscaping.

1. Accelerated M&A Activity

With the way M&A activity began to heat back up at the end of 2020, we expect the full-year activity for 2021 to meet or exceed 2019 levels. Strategic buyers have returned to the market in most industries, lenders are making capital available, and private equity balance sheets remain flush with cash. Further, pent up seller demand and looming tax changes will continue to drive the supply side of the equation.

2. More Large Transactions

Private equity investment accelerated through the 2010s and there are hundreds—if not thousands—of sponsor-backed companies nearing the end of their expected hold periods. As the year unfolds, given the lack of activity in 2020, coupled with previously planned 2021 exits, expect a surge of PE-owned company sales. 

3. Fourth-Quarter Frenzy

When we look at recent history, we’re confident that the new Biden Administration’s tax policy will spur sellers to act, leading to an even greater increase in deal flow in the second half of the year. There is historical precedent for this outlook. In 2012, following Barack Obama’s reelection, we saw a similar trend, as sellers worried impending tax increases would cut into sale returns. In Q4 of 2012, our team members personally closed more, larger deals in tighter timelines than any of them otherwise would have imagined possible. The expected change from 2021 to 2022 is even more dramatic.

4. Increase in New Industry Participants

The increasing availability of private equity capital will lead to several newly recapitalized businesses that in the years to come will be hungry for acquisitions. The recent focus on essential services has driven new firms into areas like commercial facility services, home services, and remote work solutions. Industries like home healthcare, already benefiting from strong tailwinds due to the lower cost of care and increased patient comfort, are surging as a result of how hard the pandemic hit nursing home residents.

5. The Pandemic Continues to Play a Role

Over the course of 2020, valuations remained mostly unchanged, but due diligence did take on a new intensity. Most of this heightened scrutiny surrounded uncertainty about the permanence of a business’ recovery, risk of a future surge causing businesses to shut down again, increased expenses associated with PPE and sanitization, and questions on how to adjust the shutdown out of the P&L. At this point, most feel confident that shutdowns are a thing of the past; however, the uncertainty still plays a role. The majority of buyers are back and valuations have held steady for sellers who have demonstrated a full or nearly-full recovery. Covid-specific terms may be incorporated into the deal in order to mitigate the buyer’s risk but otherwise we expect 2021 to be business as usual.


More about the Author

Craig Castelli is the Founder and CEO of Caber Hill Advisors and is considered an authority on healthcare M&A, capital markets, and valuation. He has advised hundreds of privately held businesses, private equity firms, and public companies on their corporate development activities. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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