Future trends in M&A markets
Despite geopolitical and economic uncertainty, M&A activity remained stable during 2019. However, the data available for 2020 suggest activity will decline: the M&A market was driven in the past by factors such as the high liquidity of private equity funds, low interest rates, and expansion and growth as a business strategy.
What is certain is that the number of divestments in mature or unprofitable holdings will increase to make way for new approaches to core business or new ways of doing business.
Market conditions are becoming more challenging and the future is likely to be characterised by stressed and distressed M&A, which could favour solutions that take greater account of careful trading to counterbalance the increase in global uncertainty.
A global problem
The decline in the volume of transactions has affected not just Spain, but also international markets to one extent or another, including Europe, Asia and even the United States, which was, until recently, practically immune to these problems.
The difficulties that have curbed investor appetite at national level in recent months include the political stalemate, the fear of a foreseeable slowdown in the economy, and a decline in foreign investment. To this list we could also add factors of a more international nature, such as the trade war, increased protectionism and greater geopolitical tensions, leading to a decline in M&A operations globally.
The recent fall in international securities markets due to the COVID-19 pandemic is impacting the amount of liquidity available, while buyers and sellers are increasingly unable to get together, as the limits on interpersonal relationships mean roadshows, meetings and new deals are not happening, effectively blocking the market.
The importance of having W&I insurance
Despite this decline, M&A operations continue to take place, and have, in fact, been boosted by the growth of transactional Warranty & Indemnity Insurance (W&I) or Contingency Insurance (CI). This is a service that is expected to continue growing in the coming financial years. It will be countercyclical, regardless of the volume of transactions.
In situations of uncertainty or negotiations between non-equal parties, an insurance solution can ease tensions, resolve specific issues and guarantee long-term insurance support. Anyone who has conducted such negotiations knows that M&A operations, by their very nature, involve a series of risks and that taking out insurance can help mitigate those risks, transferring them to third parties, thus helping to bring the two sides to a final agreement.