In spring of 2020 Covid-19 was spreading rapidly and, as lockdowns impeded travel and forced home-working, the markets largely froze and dealmaking came to a near standstill. It was reported in March that the value of announced mergers in the first quarter had fallen 33 percent to a seven-year low.

Survival being the priority, companies focused on shoring up their balance sheets as demand for their products and services dwindled.

Six months on, the landscape looks dramatically different. M&A business has not only bounced back, but the scale and pace of dealmaking are at record levels. In September alone, 36 deals worth more than a total of $5 billion were done, a rise of 73 percent on the same month a year earlier, according to data from Refinitiv.

A changed environment

“Incredible tailwinds are affecting different parts of the market,” says Marc-Anthony Hourihan, Global Co-Head of M&A at UBS. “Most of the deals activity is being driven either by people thinking they need to get capabilities now and get into new markets as a result of the disruption, or in some businesses it’s a case of ‘combine or die’.”

Activity has coalesced around certain kinds of deals, and technology leads the way as companies accelerate previously planned digital transformations. The value of third-quarter deals done globally in technology alone was 56 percent higher than a year earlier, at $291 million, according to Dealogic.

“If anything, the COVID Crisis has accelerated the digitization and automation of all businesses throughout our economy. Whether its online learning, remote communications or deploying AI, consumers and corporates will embrace and deploy technology at exponential rates going forward,” says Paul Crisci, Global Head of Private Markets and Chairman of TMT Investment Banking at UBS.

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Deal or no deal: How better questions, big data and ESG are driving deals now

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Alice Crawley, Managing Director at UBS discusses how due diligence and deal discovery is changing with the Wall Street Journal Custom Content team.

Data and ESG: better questions lead to better decisions

Data—including alternative data, and often at a granular level—is increasingly essential to navigating a fiercely competitive environment. It’s particularly relevant when assessing target companies from an environmental, social and corporate governance (ESG) perspective.

Alice Crawley, Managing Director at UBS, says that while there is a plethora of ESG information available from different sources, “some of these tools can be a blunt instrument or have too much of a political agenda to be trusted,” so it’s essential for an acquirer to understand the reputation of the target company as a whole.

“One interesting dynamic—to be looked at as a bit of an iceberg—is activism,” she says. Shareholder activists are often seeking M&A, in some form, as a catalyst to unlocking value at companies. “They have been building positions while stock prices have been low, but they often operate below the radar and so may not have made themselves visible to companies or in the public domain.”

Leveraging the tools of predictive analytics and big data is critical. The UBS-GUARD analytical system assesses the vulnerability of public companies (over 4,000 in the U.S. and Europe) to shareholder activism. For financial buyers, it is used to highlight companies that might have a higher probability of divesting assets attractive to SPACs.

ESG is relevant for all industries and companies, traditional and emerging, as they consider the whole ecosystem in which they operate. From shareholders, employees and customers, to the communities in which they exist, people want to do business with companies that share their own values.

Gaining that understanding will increasingly come from looking at data, Ms. Crawley believes. “ESG diligence will be fundamentally changed going forward, and that’s important to an acquirer so they can see where the issues are,” she says.

These emerging trends in the dealmaking landscape represent profound change that companies, investors and other stakeholders will be watching intently.