Halfway through 2020, Mergermarket forecast that there would be 86 M&A deals in total for the US leisure sector by the end of the year, by linking unemployment rates with leisure M&A activity and using regression analysis.
By year end, there were exactly 86 deals.
Can a new and improved model land a repeat performance for 2021?
Re-spent at leisure
The leisure sector has gone through varying degrees of recovery as lockdown restrictions have relaxed across various states. Anticipating this rebound, investors returned to the sector with gusto in late 2020—US$26.9 billion was spent across 49 deals, quadruple the total deal value seen in the first half of the year.
That momentum continued into 2021, with US$22.9 billion already invested across 29 deals, a quarterly value not seen in the sector since before the global financial crisis.
So, no prizes for guessing that this year will see more than 86 deals—but how many more should we expect?
By adjusting the model to incorporate M&A behavioral analysis and macroeconomic data including unemployment and hotel occupancy rates, restaurant revenues and COVID-19 developments, Mergermarket now says there is a 66.5% chance that deal count will reach between 128-132 deals in 2021.
And just because it can, it also forecasts 165 transactions for 2022.
Unknown quantities
How likely is this scenario? That depends on the pandemic. Even with huge progress made on the vaccine front, questions remain.
For example, the labor market slowed significantly in April and, at the time of writing, the World Health Organization reclassified the more transmissible, more deadly and potentially vaccine-resistant India COVID-19 strain as a “variant of concern” globally. It goes without saying that any tightening of restrictions would be bad for the economy and this pandemic-sensitive sector in particular.
At the same time, M&A activity in the sector is healthy. In March 2021, Hilton Grand Vacations announced that it was acquiring Diamond Resorts International from Apollo Global Management and Reverence Capital Partners, in a stock-based transaction with an equity value of approximately US$1.4 billion. That same month, it was announced that Extended Stay America had agreed to be acquired by a 50/50 joint venture between funds managed by Blackstone and Starwood Capital Group.
These are all good signs for the sector, but longer-term robust recovery is not guaranteed. Time will tell whether this optimistic forecasting sorcery will be accurate a second time.
US Leisure top five deals by value (Q1 2020-Q1 2021)
