The year 2021 saw a flurry of dealmaking activity, hitting records of $5.9trn in global deal volume, according to the US-based investment banking firm JPMorgan.
This year, the world saw a new US administration at work as well as the constant development in Covid-19 vaccines and research. This was also the year of long-drawn-out supply chain concerns due to lockdowns forced by the continuous evolution of virus strains.
Even after these hurdles, or perhaps because of them, companies became all the more innovative, keeping technology and environment, social and governance (ESG) initiatives at the forefront of their dealmaking activity.
We look at whether these trends are likely to continue in 2022 and how they are expected to evolve to match changing investor and client expectations. We also look at new merger and acquisition (M&A) themes expected to take center stage this year.
ESG agendas are becoming more important
More companies are prioritizing ESG goals and strategies in their considerations while looking at new firms to merge with. ESG due diligence has become much more important over the years with increasing calls for standardization of sources and procedures.
In this report by Bain, 65% of M&A executives who participated in a survey undertaken by the company said that they expected their company’s ESG focus to increase this year. Sustainability is a key driver in these deals, and companies that have a head start, in this case, are being regarded as increasingly profitable deals.
Changing regulatory environment
One of the main themes expected this year is a tighter regulatory environment for M&A deals, especially when it came to antitrust enforcement.
This is largely due to the Biden administration implementing stricter antitrust policies in the US.
This has led to more global firms conducting thorough enforcement and investigations, especially when considering new deals with companies based outside of the US.
A report by the multinational accounting firm PwC, noted: “we expect to see a growing appetite among PE (private equity) for larger and more complex deals.” This will make it even more crucial for firms to do their due diligence thoroughly before entering any new contract.
China loose power
China has been redirecting the spotlight inwards for the last few months, which means that it could potentially be less involved in international deal-making activity this year.
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This in turn could redirect funds to other South-East Asian markets such as Japan, South Korea, Singapore and India. China is currently experiencing heightened protectionism at a financial and political level, which may lead to tighter scrutiny when it comes to the regulatory aspects of new deals.
Global dealmaking activity, however, is still expected to hit fresh records this year as well despite China’s low involvement.
Deal making goes digital
Virtual cross-country deal making activities to get a fillip this year
With the pandemic now into its third year, a lot of cross-country dealmaking activity had to be conducted virtually. A trend to carry on this year, this is expected to lead to an increase in deals focusing on digital innovation and transformation as companies look to rebrand and reposition themselves in the rapidly changing economic climate.
This year may also see an increase in technology start-ups being acquired by larger, more established companies. Last year saw a boom in technology M&A deals, which is expected to continue throughout 2022 as well.
With e-commerce giants like Amazon and streaming companies like Netflix looking to expand their portfolios, more deals could be seen in this field.
Faster, debt-funded deals
Interest rate hikes have been a major theme in the last few months, as inflation soars out of control in the UK, the US as well as the Eurozone.
This has led to the Bank of England raising rates in two consecutive meetings already. The US Federal Reserve is also expected to move much more aggressively on interest rates following inflation touching a 40-year high in the US recently.
This has caused considerable anxiety for firms engaged in M&A deals, leading to an increase in faster, debt-funded deals, due to fears of interest rates rising further.
As a number of M&A deals are funded with debt, companies are anxious about the cost of borrowing becoming even more expensive in the future, if interest rates rise.
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