Canadian Underwriter

Five factors driving M&A activity in 2022

March 15, 2022   by Philip Porado

Puzzle pieces representing M&A.

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Calendar 2021 marked the first full year of positive mergers and acquisitions (M&A) performance for the world’s deal makers since 2016, said research compiled for WTW’s Quarterly Deal Performance Monitor.

The research, conducted in partnership with the M&A Research Center at The Bayes Business School, examines completed deals valued at or above US$100 million. It finds North American deal activity almost doubled, with 614 deals closing in 2021, compared with 325 in the prior 12 months.

“M&A activity in 2022 looks poised to match the peaks of 2015, although deals will remain susceptible to increasing challenges,” said Duncan Smithson, WTW’s senior director, HR mergers & acquisitions in North America. “High valuations, deal complexity, competition for high-quality assets and pandemic-fueled supply chain disruption will continue to have knock-on consequences for deal makers.”

The report identifies five M&A trends for 2022:

  1. Environmental, social and governance (ESG) priorities will be more important to CEOs, meaning decarbonization and other innovations that can mitigate climate risk will become core deal drivers.
  2. Fallout from the Great Resignation means companies will accelerate digital transformation to attract and retain talent – particularly in fields like cybersecurity and software engineering. The research found deals valued over US$1 billion hit a record 293 and the report predicts strong deal making in 2022 as cash-rich companies make acquisitions aimed at adding or growing capabilities.
  3. Supply chain problems seen at the pandemic’s start, and exacerbated by cyberattacks and extreme weather during 2021, will drive companies to re-shore, near-shore or make acquisitions that improve their ability to deliver goods to customers.
  4. M&A activity will become less market sensitive. A hefty supply of deal capital from private equity firms and other investors means deals will still get done if the economy cools.
  5. Inflation and ESG issues could hurt deal performance. The report notes government regulation will likely intensify, particularly for technology companies. Geopolitical tensions are also a factor, with some deal-making pullback by China possibly spurring activity in Japan, India and southeast Asia.

This article is excerpted from the Feb.-Mar. issue of Canadian Underwriter.

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