Company mergers and acquisitions boomed at record pace in 2021

According to a new study, companies bought and sold at a record pace in 2021, with 1,047 deals – each valued at more than $ 100 million – closing globally last year.

And researchers say they don’t expect merger and acquisition activity to slow any any time soon.

Last year’s M&A boom is the largest on record since Willis Towers Watson, the consultancy that completed the study, in 2008, just before the financial crisis. The company only counted deals worth $ 100 million or more.

For comparison: In 2020 there were only 674 M&A deals worldwide with an individual value of 100 million US dollars or more.

“The M&A boom … seems to be continuing – fueled by abundant capital, strong stock markets and cheap debt,” Duncan Smithson, senior director of advisory firm Willis Towers Watson, told The Post.

Another driver behind the expected increase in deals in 2022: companies looking to make their business “greener” by looking for destinations “with the right climate information,” Smithson said. In this way, they can benefit from what is known as the environmental, social and governance investment trend, also known as ESG, which involves screening companies to meet certain metrics.

Abundant investment capital, strong stock markets and cheap debt fuel M&A.AFP via Getty Images

However, when companies buy other companies, it’s not necessarily good for business: the companies that completed M&A deals last year outperformed their competitors by only 1.4 percentage points when looking at their share prices compared to companies that did did not engage in M&A activity, according to the Willis Towers study, which was carried out in collaboration with the Bayes Business School in London.

Nevertheless, this share performance was the best since 2016 of companies involved in M&A activities: in fact, it is the first time since then that M&A companies have recorded positive share price development, according to the study.

And while Smithson is optimistic that the boom will continue through 2022, he warned that traders would be concerned about factors like rising inflation.

“The speed, preparation and quality of due diligence are essential if deal maker expectations are to be met,” he said.

Wall street In 2022, deal makers will worry about factors like rising inflation. Bloomberg via Getty Images

According to the study, the value of M&A deals was about $ 1.4 trillion in 2021, down from $ 1.05 trillion the previous year. Still, that’s slightly lower than the high-water mark from the 2016 study, which showed nearly $ 1.5 trillion in deals. Willis Towers held 2021 for a record year when it comes to the number of deals over $ 100 million – which were the highest of all time, it said.

Given the ultra-high valuations of assets in this market, research suggested that the value of these deals could decline in the years to come. “The question is whether the prices that are being paid now continue to make sense over time,” warned Smithson.

Despite these negative forces, researchers believe the need for companies to expand their ESG footprint and take control of their supply chains will outweigh other concerns – fueling acquisitions, at least for now.

“Issues like decarbonization will drive deals, with additional opportunities for new ventures that will emerge from innovations to mitigate climate risks,” said Smithson. In addition, “due to the immense strain on global supply chains, many companies will strive to achieve more self-sufficiency with their products and services”.

Wall streetThe need for companies to expand their ESG footprint and take control of their supply chains will lead to further mergers and acquisitions.AFP via Getty Images

Another factor: companies looking to build talent may find it easier to acquire another company than to hire people.

“Great resignation, which has forced companies to reevaluate how to retain and attract new talent in a tight job market, will continue to be a factor as companies are under pressure to find high-end talent in areas like cyber To acquire security and software engineering. ”Smithson remarked.

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