Capital Markets Update | March 2021

Published on: 03/18/2021


Capstone Headwaters has released its Q4 2020 Capital Markets Update, available for free download below.

Capstone expects a significant level of pent-up merger and acquisition (M&A) demand to come to market in the near term. Favorable market dynamics include an increasing availability of capital, historic levels of dry powder, and a surplus of sellers motivated to transact in the current favorable tax environment ahead of potential negative capital gains treatment under the new presidential administration.

Report highlights include:

  • While middle market transaction activity declined 16% year-over-year (YOY) in 2020, deal activity showed a strong resurgence in Q4, increasing 39% from the prior quarter.
  • The lending environment has normalized to near pre-COVID levels, especially for companies in resilient industries.
  • Strategic buyers focused on risk mitigation during the onset of the pandemic but have increasingly pursued acquisitions at year-end.
  • Private equity concentrated on supporting portfolio companies to ensure operational stability during the pandemic but have returned to capital deployment, resulting in a 24% increase in private equity closed transactions in the second half of the year.
  • Add-on acquisitions accounted for 72.5% of buyouts in 2020 as private equity firms chose to pursue smaller transactions to ensure liquidity amid uncertainty.
  • Capstone believes that the strong improvement in deal volume to conclude the year bodes well for a robust M&A market in 2021 with strategic and private equity buyers operating with greater visibility.

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