Considering the effects of a global pandemic, the number of pre-merger Hart-Scott-Rodino (HSR) filings made to the US Federal Trade Commission (FTC) and Department of Justice (DOJ) held up remarkably well in 2020, coming in at 2,023, according to the FTC. The total is only slightly lower than 2019’s pandemic-free 2,089, and not dramatically lower than 2018’s record-setting 2,111 filings.
But while 2020 overall was predictably sluggish, the final months indicate a strong recovery underway. Figures from the FTC show that 424 HSR filings were submitted in November 2020—more than double the 209 filed in the same month in 2019. Although November is traditionally the busiest month of the year for HSR filings, as dealmakers race to make the filings to clear transactions before the end of the calendar year, November 2020 was an unprecedented high, surpassing the previous all-time monthly high of 254.
Though an expected drop from November, December still showed strong activity, with 192 filings versus 2019’s 172.
HSR legislation requires companies and investors to file notifications of deals that cross specified thresholds to the FTC and DOJ’s antitrust division for review, and therefore provide an insight into of the strength of M&A appetite in the US.
Positive outlook for 2021
HSR data can skew towards larger transactions, but the thresholds requiring filing do catch a material portion of all US deal activity. Unless an exemption applies, HSR filings are required for all deals worth US$94 million or more where one party has assets or sales of at least US$188 million and the other party has assets or sales of at least US$18.8 million. Additionally, transactions valued at more than US$376 million are subject to pre-merger notification without regard to the sales or assets of the parties.
The gradual rise in HSR filings from June onwards, culminating in the record month in November, offers clear evidence of pent-up demand for deals, as transactions that were put on hold in the spring are brought back to market.
After an initial period of focusing on their own portfolios, financial sponsors and corporations returned to the dealmaking table in H2, and the volume of submissions to the FTC and DOJ at the close of 2020 indicates that there is strong momentum behind M&A activity going into 2021.
Indeed, the spike in HSR filing numbers backs up other deal data showing a strong recovery in US M&A activity through the second half of 2020. US M&A activity rose to US$965 billion in the last six months of 2020—not only more than three times the US$295.5 billion total in H1, but also a 61% increase on the same period in 2019.
Deal drivers moving into 2021
Even if the level of HSR filings in the coming months do not match the record number observed in November, the steady increase in HSR filings since June 2020 shows that momentum and confidence in US M&A market is building and could remain sustained in 2021.
Indeed, in addition to the evidence provided by HSR submission data, other barometers for deal market outlook also point to recovery. The financing environment is favorable. Interest rates are low and after a slowdown in the spring of 2020, leveraged loan markets rebounded promisingly at the end of last year. According Debtwire Par data, US leveraged loan issuance climbed from US$149.2 billion in Q2 2020 to US$162.1 billion in Q3 and climbed again in Q4, increasing to US$205.3 billion.
Private equity firms, meanwhile, are sitting on more than US$1.5 trillion in dry powder, according to data firm Preqin, and deal activity is expected to be further boosted after a record year of fundraising by special purpose acquisition companies (SPACs), investment vehicles that raise money from stock markets to invest in M&A targets.
According to PitchBook, 244 SPACs raised more than US$73 billion by 22 December 2020. SPACs typically have a limited amount of time to secure a deal before they have to return capital to investors, so competition for good assets is set to be fierce.
With these factors in play, along with the commencement of COVID-19 vaccination programs, market uncertainty has calmed considerably—as made evident in stock market performances—which is sure to support deal activity in coming months.
