Corporate Finance Accomplishments and 2020 Industry Trends

Key Industry Trends

2020 Key Trends: Consumer, Food, Restaurant and Retail

Consumer sector transaction activity is expected to remain strong in 2020, most likely driven by strategic consolidation from challenging top-line sale growth and sustained increases in operating costs. There will likely be continued effort to enhance business scale and diversity while improving operating leverage with suppliers and consumer distribution channel partners. Rising operating costs may continue to be driven by a tight labor market, increasing labor costs for quality employees, evolving consumer preferences and sustained migration online, as well as challenging raw material (particularly related to specific inputs) costs due to international trade dynamics and category specific drivers. Strategic acquirors and buyers may build strategies among private equity investors seeking scale and to address the above realities, augmented by the sustained introduction of differentiated and disruptive product offerings and business models will likely drive a robust transaction marketplace in 2020.

2020 Key Trends: Healthcare and Life Sciences

The outcome of the 2020 U.S. presidential election could have a profound impact on many sectors of the healthcare industry. The leading Democratic Party candidates have made proposals to reshape the industry that range from creating a “Public Option” for individuals to a “Medicare for All” single payor system. Since either of these plans would introduce the market to great uncertainty, we expect a trend in 2020 healthcare M&A where volume will be front-end loaded as sellers try to complete transactions as far ahead of the election as possible. This trend should be even more pronounced in the sectors that could be most affected by policy changes such as health insurance and pharmaceutical.

2020 Key Trends: Industrials

General industrial transactions were buffeted by various headwinds over the last year centered around concerns, including uncertainties about the length of the current economic expansion in the U.S., global economic slowdowns, Brexit, trade wars, credit concerns and the disruptive impact of new technologies and business models on business playbooks. Despite these headwinds, strategic buyers are active as it remains vital in this globally competitive environment to achieve product, customer and geographic growth. These strategic dynamics, coupled with healthy corporate balance sheets, an attractive U.S. marketplace versus other less stable markets, record levels of private equity dry powder, and credit providers awash in cash helping negate some credit concerns, point to a sustained industrial M&A market in 2020.

2020 Key Trends: Aerospace Defense and Government Services

Global defense budgets are expected to remain steady in 2020, driven by a continued heightened threat environment and key investments in next-gen technologies, including hypersonics, directed energy, artificial intelligence and machine learning. Despite the positive macro environment, the 2020 U.S. election cycle introduces an element of risk and uncertainty around long-term Department of Defense (DoD) funding priorities, compounded by continued political infighting in Congress to pass the FY20 budget (as of this note, the DoD is being temporarily funded by a Continuing Resolution, though a compromise to increase the DoD topline to $738 billion appears close to an agreement). Regardless of the outcome of the presidential (and, to a lesser extent, congressional) election(s), strategic interest in the sector is expected to remain strong in 2020, as industry players continue to deploy capital into M&A to fill capability, customer and contract vehicle gaps in their portfolios.

2020 Key Trends: Energy and Mining

North American upstream capital spending is expected to experience a modest decline in 2020 as exploration and production companies continue to respond to capital market demands of operating within their cash flow. As a result, oilfield service M&A will likely continue to see unique challenges associated with a lack of capital markets support. The upstream oilfield service sector may experience increasing interest in cashless mergers and creative transaction structures as the need for consolidation drives transaction activity. Alternatively, the midstream and downstream energy/industrial service firms will likely experience strong M&A activity. With the U.S. becoming a low cost global provider of natural gas, the energy infrastructure and hydrocarbon processing industries (both chemical and refining) have experienced significant growth over the past decade. Repair and maintenance companies servicing customers in these segments are likely expected to achieve superior growth and M&A activity has already begun to accelerate.

2020 Key Trends: Technology and Telecom

There was a bifurcation in the technology M&A market in 2019, with another record year for software M&A offset by a slight softening across other sub-sectors of tech. In terms of deal themes, 2019 saw enterprise software platform providers acquiring adjacent functionality, open source models becoming mainstream, and a continued increase in participation from private equity buyers. Heading into 2020, we expect software M&A activity and valuations to remain strong for at least the first half of 2020 but anticipate rising uncertainty heading into the second half of the year pegged to the U.S. presidential election in November. While there are continued concerns around global economic uncertainty and continued trade tensions between the U.S. and China, we remain cautiously optimistic about the outlook for the year.

M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory, capital raising and secondary market advisory services in the United Kingdom are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.