The number of announced deals exceeded 62,000 globally in 2021, up an unprecedented 24% from 2020. Publicly disclosed deal values reached all-time highs of US$5.1tn—including 130 megadeals with a deal value greater than US$5bn—a whopping 57% higher than in 2020 and smashing the previous record of US$4.2tn set in 2007.
The often-frenzied M&A activity in 2021 was fuelled by intense demand for technology, and for digital and data-driven assets, and the pent-up deal-making demand from 2020 that was unleashed.
According to PwC's Global M&A Industry Trends: 2022 Outlook report, these records are not expected to be smashed in 2022. But all the indications point to another supercharged year.
Economic optimism remains high, there’s a strong deals pipeline, capital is in abundance, and companies across all industries badly need technology. It is true that there are growing headwinds. The trifecta of low operating costs, lower regulation and taxes, and ever lower interest rates have, over the past decade, helped companies achieve year-on-year earnings growth, pushed stock markets to seemingly endless record highs, and generally spurred M&A.
But now, each of those pillars is facing pressure for the first time in a decade, as the pandemic has disrupted the status quo. As a result, higher interest rates, rising inflation, increased taxes and greater regulation could introduce structural or financial hurdles or delays for deals in 2022.
There has already been observed greater volatility in financial markets, further disruptions in the global supply chains and increased levels of fiscal debt, as shockwaves from the pandemic continue to play out globally. As we’ve already learned from the pandemic, dealmakers should stay alert to how the new accelerated pace of change can bring these factors—or others—into play earlier and with greater impact.
Private equity's impact on M&A is growing.
In addition to 2021 being a record year for fundraising, PEs also put record amounts of capital to work. Global PE dry powder ended 2021 at US$2.3tn, 14% higher than the start of the year—highlighting that there is plenty more M&A to come in 2022. However, fierce competition continues to push up multiples, which has created more pressure on the PE industry to generate returns.
That means there is a greater need for financial buyers to bring deeper operational expertise, a greater focus on responsible investment (ESG) and a sharper focus on value creation than ever before. Those able to generate above average returns will be rewarded by increased investor interest, enabling them to deploy these funds through M&A activity in 2022.
Environmental, social and governance (ESG) factors are increasingly taken into account in M&A decision-making and strategy, as investors use ESG criteria to assess risks and to identify value creation opportunities. For example, in PwC’s Global Private Equity Responsible Investment Survey 2021, it was discovered that more than half of all respondents had either refused to enter an agreement with a general partner or turned down a potential investment on ESG grounds.
With increasing commitments being made to reduce carbon emissions by companies and PE funds, it is anticipated increased capital will be mobilised for transition to greener sources of energy, creating opportunities for M&A, not just in the heavier carbon-emitting sectors but in those which innovate to develop the new technologies for the future. It is also expected increased M&A in industries that are transitioning to new business models, such as the major oil and gas companies—as they pivot to invest in renewables and hydrogen—or in the technology industry, where companies are innovating around energy storage or solutions to create a more sustainable circular economy.
