Five factors driving M&A activity in 2022

Calendar 2021 marked the first full year of positive mergers and acquisitions (M&A) performance for the world’s deal makers since 2016, said research compiled for WTW’s Quarterly Deal Performance Monitor.

The research, conducted in partnership with the M&A Research Center at The Bayes Business School, examines completed deals valued at or above US$100 million. It finds North American deal activity almost doubled, with 614 deals closing in 2021, compared with 325 in the prior 12 months.

“M&A activity in 2022 looks poised to match the peaks of 2015, although deals will remain susceptible to increasing challenges,” said Duncan Smithson, WTW’s senior director, HR mergers & acquisitions in North America. “High valuations, deal complexity, competition for high-quality assets and pandemic-fueled supply chain disruption will continue to have knock-on consequences for deal makers.”

The report identifies five M&A trends for 2022:

• Environmental, social and governance (ESG) priorities will be more important to CEOs, meaning decarbonization and other innovations that can mitigate climate risk will become core deal drivers.
• Fallout from the Great Resignation means companies will accelerate digital transformation to attract and retain talent – particularly in fields like cybersecurity and software engineering. The research found deals valued over US$1 billion hit a record 293 and the report predicts strong deal making in 2022 as cash-rich companies make acquisitions aimed at adding or growing capabilities.
• Supply chain problems seen at the pandemic’s start, and exacerbated by cyberattacks and extreme weather during 2021, will drive companies to re-shore, near-shore or make acquisitions that improve their ability to deliver goods to customers.
• M&A activity will become less market sensitive. A hefty supply of deal capital from private equity firms and other investors means deals will still get done if the economy cools.
• Inflation and ESG issues could hurt deal performance. The report notes government regulation will likely intensify, particularly for technology companies. Geopolitical tensions are also a factor, with some deal-making pullback by China possibly spurring activity in Japan, India and southeast Asia.

This article is excerpted from the Feb.-Mar. issue of Canadian Underwriter.

Feature photo courtesy of iStock.com/nespix