Experts are predicting a big year for mergers and acquisitions (M&As) in 2021 and this is likely to impact on your ASX share investments.
Herbert Smith Freehills partner, Tony Damian, says he has never seen the M&A pipeline this full. And unlike previous years, his firm is not expecting any Christmas slowdown for dealmakers this year, reported the Australian Financial Review.
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COVID could unleash M&A frenzy in 2021
You can thank or blame the COVID‐19 for this. The pandemic has created a number of tailwinds for takeovers, which will carry though well into next year.
"There's a confidence around the boardroom table, people are getting on with things that they have been thinking about for some time," Damian told the AFR.
"Boards are acutely conscious any decent asset will have a range of admirers – corporates, [private equity], pension funds, local super funds. The animal spirits of M&A are alive and kicking."
Cheap money only half the story
The economic meltdown caused by COVID unleashed a wall of money into the global financial system. Cash is so cheap and bountiful that we have an increasing number of dollars hunting for new homes.
This flood of liquidity is primarily credited for the rapid rebound in the S&P/ASX 200 Index (Index:^AXJO) and international share markets.
The other "benefit" from the pandemic is the nominalisation of working from home. It's now acceptable for deals to be struck online and that means many bankers and advisors will be working from their beach houses over the festive break and beyond.
This increase in productivity could see more deals done. The AFR reported that we could see a record number of M&A transactions over the next 12 months.
ASX stocks in the M&A spotlight
As it stands, a number of ASX stocks are under the M&A spotlight. The Coca-Cola Amatil Ltd (ASX: CCL) share price, AMP Limited (ASX: AMP) share price and WPP Aunz Ltd (ASX: WPP) share price are just a few examples of companies fighting off takeover approaches.
There's also speculation that the BlueScope Steel Limited (ASX: BSL) share price and the Boral Limited (ASX: BLD) share price may also see some corporate action in 2021.
Takeovers an extra tailwind for ASX value stocks
What's perhaps more significant for ASX investors is that the potential M&A frenzy will feed the rotation into value stocks from growth.
ASX value stocks have only recently been outpacing ASX growth stocks and experts remain divided on whether this marks a real turnaround.
Value stocks tend to be those that have underperformed. These stocks are also the ones that attract the most interest from would be bidders.
Of course, one should never invest based on takeover speculation. But it's always nice to know that some bidder might be lurking behind some attractively priced ASX stocks.
