Corporate Finance Accomplishments and 2020 Industry Trends
Year-end Review and 2020 Outlook
2019 was a great year for our clients and colleagues and we are thankful for your collaboration. With decades of experience, the firm's Corporate Finance practice delivers high-quality, independent and objective financial advice that corporate decision makers can trust. We look forward to continuing to work together in the year ahead.
2020 Key Trends: Aerospace Defense and Government Services
U.S. defense budget growth is expected to moderate in FY2021 and beyond, after years of significant investment and force structure build-up under the current administration. These budgetary headwinds were anticipated pre-COVID-19 and are expected to be exacerbated by the fiscal strain of the pandemic on the broader U.S. government balance sheet, with defense possibly becoming a “bill payer” as it has in previous budget crises. This is expected to force tough decisions regarding which programs should continue to receive funding priority, with a likely focus on continued modernization of the armed forces, versus sustainment of legacy platforms.
2020 Key Trends: Healthcare and Life Sciences
2020 Key Trends: Technology and Telecom
Following a very active year for technology M&A in 2019 and with another record year for software M&A, M&A activity and valuations were poised to remain strong for the first half of 2020. However, COVID-19 significantly impacted M&A deal values and valuation multiples in March 2020. Given a very robust start to the year in January and February, the first quarter deal volume and value was consistent with recent quarters, but in April 2020 we saw a decline in median deal multiples from 2019’s record high. Despite the lower M&A deal valuations, the technology sector has continued to show resilience with a strong recovery in public market valuation multiples, which are close to all-time highs.
2020 Key Trends: Consumer, Food, Restaurant and Retail
2020 Key Trends: Energy
In February, 2020, the U.S. increased crude oil production to approximately 13 million barrels per day and exceeded its upstream capital spending to the rest of the world. This was followed by a disagreement among OPEC+ members over supply of crude and a significant decline in crude oil prices. The low demand for crude oil caused by COVID-19 related economic stoppage policies and the lack of available global crude storage caused a precipitous decline in global crude oil prices and substantial pricing volatility. As a result, upstream capital spending will likely be curtailed through the remainder of 2020. In the near term, the upstream oilfield services sector may experience a rise in cashless mergers as companies seek cost savings to combat reduced activity.
2020 Key Trends: Industrials
General industrial transactions have encountered significant headwinds in the first half of 2020, centered around COVID-19 related shutdowns. The continued uncertainties related to the corresponding economic fallout, general societal unrest and global trade tensions are expected to hamper M&A markets throughout the remainder of 2020. Across the industrial landscape, certain sectors which have been more meaningfully impacted by the economic shutdowns (e.g., automotive and commercial aerospace) and will likely remain at lower output levels for the foreseeable future. Credit markets for new debt issuances have tightened significantly and borrowing costs have increased as lenders reprice credit due to higher perceived risk.
Healthy corporate balance sheets, to a certain degree, have helped strategic buyers weather these headwinds and others are seeking to strengthen competitive positions, solidify supply chains, and look at new channels for product or service offering expansion. Industrial M&A activity is anticipated to remain at lower levels, compared to the past several years, throughout the remainder of 2020 with a gradual uptick in activity as the year progresses and the economy begins to reopen.
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