Why Is the Mergers and Acquisitions Market Breaking Records?

The mergers and acquisitions market is seeing record growth and activity. Here’s why that’s happening (and what you need to know about it).?

Key takeaways:

• 2021 proved to be the best year in history for the mergers and acquisitions market.
• Global volume topped $5 trillion, and the strong performance is expected to continue in 2022.
• Economic optimism and easing of travel restrictions are set to fuel M&A volumes this year.
• Access to cheap capital from PE firms and SPACs continues to make them attractive to investors.
• Activity in middle-market M&A improved in 2021, so more should be witnessed in 2022.
• The need for supply chain changes will also increase M&A volumes.?

The mergers and acquisitions (M&A) industry had a fantastic run in 2021. Several record-breaking deals were announced throughout the year, despite global upheaval, and the pace is expected to pick up in 2022.

But what, exactly, is prompting the flurry of activities in the M&A scene? Companies have been looking to grow, consolidation has been rife, and companies are re-evaluating their business models due to shifting customer demands. Others are looking to become more resilient by foolproofing their cybersecurity and supply chain processes.?

Here’s what you need to know about why the mergers and acquisitions market is breaking records.

Key mergers and acquisitions market drivers in 2022

Global M&A transactions topped $5 trillion in 2021, something that has never before been witnessed in history. It’s likely that not all the current records will be broken in the coming year, but everything indicates that we may just have another supercharged year:?

• Many countries around the world are slowly recovering from recent economic downturns.?
• Business owners are optimistic about the global economic outlook and are more confident about engaging in cross-border M&A.?
• There are also a lot of deals in the pipeline, and several companies are looking to invest in technology – even those that are considered non-tech.?
• For consumer companies, managers are finding it critical to invest in data analytics that can help them better predict clients’ behaviors.?
• Healthcare providers are also finding it prudent to use analytics and technology to efficiently offer affordable care.??
• Financial institutions, on the other hand, have been on the lookout for payment services to handle the ever-increasing demand for digital banking and mobile payments.?
• This trend continues to lure many investors into the fintech space.?

These key drivers reveal that 2022 may be another great year for mergers and acquisitions. This setup is being further fueled by additional factors that are helping more companies engage in the M&A space.

Factors encouraging more M&A deals

M&A volume reached unprecedented levels in 2021, and many stakeholders expect the same amazing performance this year. Here are some reasons why you should expect many more deals in 2022 and beyond.

Better access to capital

A major reason behind the flurry of M&A activities is an overflow of investment capital. Many of last year’s mega deals were facilitated by healthy balance sheets brought about by the strong performance of the stock market.??

The mergers and acquisitions market also received capital from diverse sources. Private equity (PE) companies took a big piece of the M&A pie in the last year, for example, and accounted for more than 35% of the total M&A volume by November 2021. With many more deals in the pipelines, PE firms should complete more deals in 2022.?

It is also impossible to overlook the role of special purpose acquisition companies, more commonly known as SPACs. SPACs gave PE firms and corporations a run for their money as their use boomed in 2021. A number of these companies will now be seeking to deploy their capital before the typical two-year window of acquiring or merging with other firms.?

More activity in middle-market M&A

The mega-deals made in 2021 generated impressive headlines. What you may not have noticed was the increase in middle-market M&A transactions. There are typically 400 to 500 annual M&A deals that range from $500 million to $5 billion. In 2021, however, there were about 800 of these transactions. This shows that even small and medium-sized companies wanted a piece of the action.?

Many middle market firms sat on cash reserves to help improve their liquidity during the recent uncertain times. The current economic optimism has seen many restart their M&A deals, though. Consolidation has also made it possible for these firms to join the mergers and acquisitions market? frenzy as many owners sell or merge their businesses.?

Supply chain optimization

The recent pandemic exposed various supply chain risks that can easily affect global trade. Companies now find it prudent to streamline their supply chain processes to avoid future disruptions. Many firms will be looking to mergers and acquisitions to make themselves more agile and resilient. Upward vertical integration can help companies secure the raw materials they need, after all, and downward integration will allow them to control their distribution.?

Firms that recently experienced the inconvenience of labor or raw material shortages and shipping challenges – mostly manufacturing and pharmaceutical companies – are now exploring onshore and near-shore options to avoid future issues. Many investors will be looking to find tech companies that can streamline supply chain processes through big data and analytics.?

Let a trusted M&A advisor complete your deal?

2022 may just be a better year for the mergers and acquisitions market if current industry trends continue. Of course, there are headwinds such as increased regulations and rising interest rates. Many firms are thus racing against time to complete their M&A deals before the economic environment changes.?

Working with a trusted M&A advisor that will guide you through the deal is the best way to ensure you do not get shortchanged. SF&P Advisors is here to help. Take the first step and book a call with Brian. We’ll take it from there to ensure your deal is up and running in no time.