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.
Simple and intuitive platform
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.
Rate this article
Ready to get started?
The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.