Investment Banking and the M&A Space in 2020

On this episode of Deal Talk with 7MA, Managing Director Ben Lunka joins us to provide an update on the M&A market over the course of this exceptional year. This episode is part of a series recorded during the ACCESS 2020 Event.

In this episode, Ben discusses how the M&A market has navigated COVID-19, general market trends and themes we saw over the course of the year, particular segments of the market that the 7 Mile team focuses on, and where we see the market trending from an M&A activity evaluation and volume standpoint.

COVID has had a tremendous impact on the economy, and there is always a resulting impact on the M&A market. During the initial fall in March and April, companies had to scramble to calibrate their strategies in an effort to mitigate the effects of COVID. However, now that those strategies are beginning to play out, we’re seeing a move towards areas where they see predictable growth and predictable market opportunity with cloud infrastructure, e-commerce, and remote software development.

While private equity investors may approach deals with more caution and heightened standards, they’re not avoiding the Information Technology space—a vertical on which the 7 Mile team focuses. We’re seeing some companies in the Enterprise Software and Digital Tech Services categories trading at all-time highs.

2020 has seen a 24% year-over-year decline in deal count and a more drastic 40% decline by deal value. Because of the market risk factors attributable to COVID, companies were less likely to bet the farm on megadeals in Q2 and Q3, leading to these significant declines. However, we’re already starting to see those numbers rebound heading into 2021.

Despite the damage caused by COVID-19, 70% of businesses reported that they would either increase investments or maintain current spending. Valuations are expected to maintain during this year. While 2020 will close as a down year for M&A, 2021 may likely provide an excellent rebound.

Ben also responded to questions from attendees, including:

•  Multiples are very high at the moment, yet you have said that deals are still being done for quality companies. Do you see moving forward that multiples will fall? What do you see M&A activity doing with regards to multiple levels? (29:17)
• Are multiples also including software and services? (31:08)
• Can you elaborate specifically on B2B fast multiples for 2020? It’s hard to know if enterprise software covers both SAS and non-SAS. (32:48)
•  What kind of appetite is there for smaller enterprise software startups with ARR less than 1 million? (34:36)

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