STATE OF THE M&A MARKET 2022

STATE OF THE M&A MARKET 2022

In the last 12 to 24 months, we have seen turbulence in the market. From the pandemic to the geopolitical disruption in Ukraine, many external factors are coming together at once and affecting the M&A ecosystem. Amidst this environment, I thought it would be impactful to reflect on where we are today and where we expect things to go in 2022.

COVID-19: THE “BLACK SWAN” HEALTH CRISIS

COVID-19 was, first and foremost, a health crisis that led to a financial crisis. Similar to the financial crises of 2008 and 2009, the pandemic was a “black swan” event – nobody saw it coming, and nobody knew how long it was going to last nor what to expect. However, shortly after the economy came to a halt from March to July of 2020, we saw an unexpected, significant rebound in not just the M&A market, but also in public equities and economies all around the world.

AN UNEXPECTED REBOUND

With so much uncertainty looming over public markets, the speed at which robust dealmaking returned early in the pandemic was certainly unusual. However, investors have learned their lesson from past financial crises and were very quick to look at and act on the opportunities for returns and transactions when COVID-19 hit. They knew that the transactions providing the greatest returns were the ones that were invested in very early on during the pandemic, and therefore were able to ride the post-crisis rebound as we’re still doing now. Despite what happened, 2020 was still a relatively decent year for mergers and acquisitions. 2021, another year of quarantine, was a record year for M&A activity globally, with over 60,000 transactions taking place, approximately 18,000 related to purely private equity. This momentum has carried us through to 2022, where M&A activity has been as vigorous as it was in 2021.

POST-PANDEMIC: VORTEX OF VOLATILITY

As we began emerging from the pandemic, many other factors have been hovering over the economy, the M&A ecosystem, and the public equity markets. For example, we’ve been seeing supply chain disruptions, as well as rising inflation rates, energy costs, and labor and wage costs. Of course, Russia’s recent invasion of Ukraine is another “black swan” event that had unexpectedly fallen upon us. These variables occurring simultaneously has enacted what I call “the vortex of volatility” and have forced us into a holding period, waiting to see what will happen next. These structural risks are prevalent; they will continue for the foreseeable future and profoundly impact the economy. However, some of these risks are mitigated by the tremendous amount of dry powder we have in the markets. There is over $1 trillion - raised by, for example, private equity, sovereign wealth, and hedge funds - built up over the last several years that need to be deployed to chase returns and keep the M&A markets afloat. The question is: how long can that maintain?

LOOKING TOWARD THE FUTURE

This time next year, in 2023, the world is likely to be a very different place. There’s been a lot of M&A activity to get ahead of what people believe will be either an economic recession or, worst case, depression. Suppose our economic situation continues to deteriorate, investors can’t get the returns they need in public equity markets or other investments. In that case, we may see an even further pivot into M&A as people look for returns. That being said, I believe - whatever happens - there will still be a constant flow of M&A activity. There may be a pause while the economy and investors adjust to other factors. However, ultimately, everyone will adapt to a new normal - whatever that new normal will be.

We're advising our clients today at A&M to be diligent, remain vigilant, and be cautious. Fortune favors the brave, and that's the mindset we all need to take in this environment, not just today, but in the future when conducting M&A transactions.

For more information about our cross-border M&A services:?https://www.am-globaltag.com

Follow me on LinkedIn:?https://www.dhirubhai.net/in/aversanopaul/

Follow me on Twitter:?https://twitter.com/paulaversano

All thoughts and opinions are my own.