M&A wave incoming in 2021, says Edmond de Rothschild CIO

Harriet Matthews
03 July 2020

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Benjamin Melman, chief investment officer at Edmond de Rothschild, has said the firm expects a wave of M&A in 2021, in spite of macroeconomic uncertainty.

Melman summarised the firm's H2 2020 outlook in a briefing on 2 July 2020.

"We continue to be bullish on healthcare and global data, which are the main winners of the crisis," Melman said. "We also think there is going to be a strong M&A wave coming – when you look at each sector, it's striking to see the heterogeneity of the corporates. Some corporates in each sector will suffer far less than others – these others will effectively become zombies, as they had high leverage before the crisis and it will be higher by the end. It will be an opportunity for the stronger competitors to take advantage and buy competitors at a low price to gain market share."

However, the firm does not expect a sudden recovery in the near future. "We don't see it for the coming weeks or months," Melman explained. "Investment banks are not seeing a strong pipeline of M&A, but let's say for next year, there will be a strong window of opportunity for the strongest corporates to buy their weakest competitors, and we should see a revival."

This wave should come regardless of whether an industry has proven resilient to the coronavirus pandemic, Melman said. "In our funds, we are focusing on the M&A scene right now, which in our view should materialise in every sector."

Melman also offered the firm's perspective on areas including currencies, fixed income and subordinated debt. "Listening to the main rating agencies, it seems that right now, the rates tend to be revised lower," he said. "But defaults may rise among corporates in the coming months."

The world has seen unprecedented and quick action from central banks in an attempt to stabilise the markets, Melman noted, and the ECB initiatives have also alleviated the damage to the EU and facilitated a European recovery fund.

To conclude, Melman highlighted the high levels of macroeconomic uncertainty that remain, ranging from the possibility of second waves of the virus, which are already emerging in countries including the US, to Brexit. "There is still some political risk and we expect to focus more and more attention on the US election," Melman said. "The Brexit question is still lingering. The deal may happen at the last minute and there will probably be some volatility on that front."