How will M&A in 2021 Compare to 2020 for the Dallas Fort-Worth Market?

Mergers and acquisitions

Written by Dr. Nolan Duck

Dr. Nolan Duck is a Board Certified Broker with the Texas Association of Business Brokers (TABB) and a licensed Commercial Real Estate Broker with the Texas Real Estate Commission. Nolan is also a Certified Value Builder, Certified Exit Planning Advisor and member of the Alliance of Merger & Acquisition Advisors. As a business coach, author and public speaker, Nolan enjoys sharing advice and consulting with business owners seeking to grow, expand or exit.

It’s no secret that 2020 was nearly universally a difficult year, so it should come as no surprise that it wasn’t the best year for mergers and acquisitions.

In fact, the Texas Lawbook’s Corporate Deal Tracker reported a 30 percent decrease in transactions and a 25 percent drop in value compared with 2019. That translates into 429 M&A transactions in the state instead of 2019’s 623.

The blame for this decrease does not fall squarely on the COVID-19 pandemic. Rather, it was the uncertainty about the future in an economic downturn. Future retail, future travel, future energy demand, future everything.

The good news is that there are already signs that 2021 will be a better year to sell your business or acquire a new one, especially if you consider the trends and follow in the footsteps of some of 2020’s better deals.

Key Deals Announced in 2020 for DFW

The Dallas-Fort Worth area started to see more M&A action in the second half of 2020, with 63 deals in the third quarter as opposed to 43 in the second quarter, which was smack in the middle of lockdowns.

The metro area tied at No. 4 with Los Angeles on the list for M&A deal counts and won out over other big cities such as Chicago, Washington, D.C., and Atlanta.

Health care-related M&A deals were a strength throughout 2020, as the industry was tasked with finding treatments and vaccines amid the pandemic.

  • At first, the energy sector was looking like a weak spot. But the latter half of 2020 brought about several M&A deals, starting with the much-awaited $5 billion Chevron/Noble Energy consolidation.
  • Soon after, Houston-based ConocoPhillips acquired Concho Resources for $9.5 billion. This led to a string of deals, including Midland’s Diamondback Energy’s purchase of QEP Resources for $2.15 billion.
  • Dallas-headquartered 7-Eleven took over the Speedway brand from Marathon Petroleum Corp. for $21 billion. This deal expanded the convenience chain’s presence to 47 out of 50 states.

Additionally, the pandemic highlighted M&A trends that had already started to emerge, such as those dealing with the digital economy and the increase of local/regional deals. And there were a lot of deals pertaining to personal communications technology (think Zoom), productivity tools, and home office furniture. And then there was a resurgence in online dating.

  • Dallas-based was in the pits in March, but once people turned to the app for human connection during the pandemic, the app was able to reverse merger in June on a market high of $30 billion.
  • And the pandemic-approved outdoor experience of golf led to a $2.5 billion merger of TopGolf of Dallas and golf heavyweight Callaway.

These deals were big, no doubt. But the overwhelming majority of M&A deals in 2020 involving Texas companies were small or mid level, $500 million or less. This is just the type of deal DBG Advisors is known for, and we can help you partner with the right company.

How are Macroeconomic Factors Affecting Private Companies?

Many outside factors will affect your private company valuation in 2021. These current trends may also determine how well your business is positioned for a sale.

K Shaped Recovery: Some Businesses are Growing, Others are Failing.

The stock market does not always align with the real economy. In 2020, it quickly recovered, reaching record highs. This leads to financial confidence and increased consumer spending, which in turn translates into increased revenue.

Some of the best performers were companies growing quickly, despite the pandemic. Many of these businesses experienced exploding user adoption and revenue, benefitting from lockdowns. Industries that were able to benefit from lockdowns included: eCommerce, telehealth, cloud infrastructure, cyber security, delivery, warehousing, digital entertainment, and video game designers.

Economists describe the post-recession of 2020 as a K-shaped recovery. While the above businesses prospered: travel, event companies, restaurants, live entertainment, malls, oil and gas and physical retail suffered.

As 2021 unfolds, the K-Shaped recovery is likely to continue until many are vaccinated. As a result, companies that are benefitting from our change in habits are seeking M&A targets. For private businesses still recovering from 2020, business valuationcould prove problematic for closing a deal.

Low Interest Rates and Government Loans

Every business and consumer can borrow at historic interest rates while they remain low. Low-interest loans better position your business for growth because you can recoup and earn more from new operations, expansions, and inventory. Plus, you will have enough left over for profits after paying your premium

Loans in 2021 are also getting easier to obtain, with additional PPP loans and increased government stimulus funding. There is also continued focus on approving loans for minorities and disadvantaged business owners. Overall, acquisition financing in 2021 has low risk and a high chance of approval.

Moving Truck CaliforniaCalifornia Companies Relocating to Texas

The trend of companies moving their operations from Silicon Valley to Texas is continuing at a record pace. Seeking to avoid high tax rates and regulations in California, startups to large enterprises are making Texas a home.

In 2020, Oracle and Hewlett Packard announced plans to move their headquarters to Texas. Charles Schwab recently updated their headquarters to Denton County. As of November, 35 companies had opened locations in the Austin area in 2020 alone.

While many of these companies are public, there are thousands of privately owned operations making the move to the DFW region. Once here, the lower cost of living and savings can translate into increased M&A activity.

What to Expect in 2021 for DFW

North Texas kicked off the year with robust M&A deals, continuing the uptick started in the second half of 2020.

Industries that stayed strong through the pandemic will continue on this path. For example, experts expect middle-market health care mergers to accelerate in North Texas.

Mining M&A deals — which went into 2020 strong but stalled in the pandemic — still seem poised to move strong in the future as industrial automation, the internet of things, extraction technology, robotics and big data require this sector for innovation.
Virtual dealmaking in reaction to the pandemic has gone smoothly, and companies that find solutions for cybersecurity threats and virtual work environments will continue to have clout.

Position Your Company for M&A Success in DFW

If you’re looking to buy in the next year, it’s important to properly value your target, starting with the people involved. When it comes to merging processes, the tech is the easy part. Forming a cohesive company culture is the hard work.

If you’re looking to sell in the next year, you should be prepared to figure out the value of your company and why you are wanting to sell.

Whether you are buying or selling your privately held, lower middle-market company, DBG Advisors is here to help. We are known in the Dallas area as one of the most respected M&A advisory firms around, and we provide uniquely skilled advice to our buy-side and sell-side clients on matters related to sales, corporate restructuring, and financing events.

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