Global M&A market active despite economic downturn

BY Business.a.m.

Reports of global merger and acquisition (M&A) activity entering a dry spell appear to be premature, WTW says.

Dealmakers have recorded the third highest number of completed deals in an opening six months since WTW began tracking M&As in 2008.

In fact the only years that have surpassed the 441 deals (valued over $100 million) completed in the first half of 2022 were 2021, during an exceptional pandemic rebound, and 2015.

Although deal activity has slowed from its record-setting 2021 pace, when 484 deals were completed in the first six months, M&A volumes remain buoyant this year with the number of transactions continuing to exceed pre-pandemic levels, according to the data.

Deal performance, in contrast, has struggled to defy gravity and has clearly been impacted by market volatility.

Buyers underperformed the wider market by -4.8 percent, based on share price performance, during the first six months of 2022. The average time to close a deal has also increased in 2022, with 60 percent of transactions during the first six months taking over 70 days, compared with 54 percent in the first half of 2021.

Market volatility in 2022 has raised the stakes for buyers, WTW says, advocating caution and increasing due diligence.

Jana Mercereau, head, corporate M&A consulting, at the company, said: “While there has been a slowdown this year, following the record-setting pace of 2021 thanks in part to booming markets and widespread stimulus measures during the pandemic, the pipeline remains very healthy, even with deal execution becoming harder due to increased volatility and macro concerns.”

The number of deals worth over $10 billion was up to 12 in the first half of 2022 compared to 10 in the same period last year, signalling that companies have not been put off from completing the larger deals planned and announced during the post-pandemic boom, despite the broader market turmoil of the first half of 2022.

All regional acquirers, except those in Asia-Pacific (APAC), underperformed in the first half of 2022. APAC acquirers outperformed their regional index, showing an overall performance of +7.2 percent with 96 deals closed.

North American acquirers underperformed their index by -6.1 percent with 220 deals completed in the first six months of 2022, and dealmakers from Europe underperformed their index by -5.9 percent with 102 deals in the same period.

Mercereau said: “Debt is still relatively cheap by historical standards and abundant dry powder from private equity firms and SPACs raised during 2021 ensure the appetite for deals remains strong, although clear risks lie ahead. Geopolitical uncertainty, rising interest rates and supply chain disruptions create a volatile mix that will make deals more complex, take longer and require a new focus from buyers on how to improve the odds of success.

“At a time when change fatigue is at an all-time high, with the pandemic in its third year, clear and consistent communication to employees and the market will prove more critical than ever to preventing greater disruption and confusion, and ensuring deals get over the finish line, create value and drive long-term growth.”