Global M&A Activity Remained Resilient in 2022 Despite Harsh Macroeconomic Headwinds: Report

In 2022, global M&A activity “remained resilient despite harsh macroeconomic headwinds that persisted throughout the year,” according to an update from Pitcbbook.

Compared with 2021, M&A value “declined 13.7% to $4.7 trillion but was strong relative to historic levels and marked its second-best year.” Pitchbook noted that Global M&A “broke a new record in 2021 as deal activity rebounded from the COVID-19-induced slowdown and thrived in an environment of more bullish confidence levels, surging fundamentals, and high multiples.”

While M&A activity appeared poised to continue its frenzy, several macroeconomic developments at the onset of 2022 “threw markets off course.”

The Pitchbook report pointed out that staggering inflation figures “across global markets, driven by rising demand, supply chain issues, and labor shortages, led central banks to aggressively raise interest rates in 2022.” The US Federal Reserve (the Fed) “announced seven interest rate hikes during the year, boosting the federal funds rate to its highest level in 15 years.” Europe also “moved away from decades of quantitative easing:” The Bank of England “hiked interest rates to 3.5% in its ninth increase of the year while the European Central Bank raised its rate to 2%.”

Global equity markets tumbled during H1 2022 as company valuations “were driven down in response to future cash flows being discounted at higher rates and becoming less valuable.”

The report added that at the same time, Russia’s invasion of Ukraine “heightened market uncertainty and caused several weeks’ pause in Q1 dealmaking as investors grappled with the fallout.”

PE firms also struggled “against increased borrowing and leverage costs for potential deals, and the leveraged loan market came to a virtual standstill in H2, further complicating dealmaking.”

The Pitchbook report also mentioned:

“Undaunted, buyers took advantage of cheaper prices, with median deal multiples declining to 8.8x EBITDA from a 14- year high of 11.1x. M&A value was almost 20% higher than pre-pandemic levels for the three years ended 2019.”

Other factors supported M&A activity. For example, PE firms still “have $1.3 trillion of dry powder globally, enabling sponsors to capitalize on attractive deals spurred by the market downturn that resulted in lower valuations and distressed assets.”

Sponsors also continued “to deploy capital in a challenged financing environment by taking down deal sizes and turning to add-on acquisitions until lending markets become more accommodative to large platform buyouts.”

Add-ons accounted for a record 71.9% of buyout deals in 2022, “given that their smaller size and their ability to rely on their larger acquirer’s credit makes them easier to finance.”

The report added:

“Well-capitalized strategics also continued to chase deals for long-term growth. 12 strategic acquisitions worth more than $10 billion were announced in 2022, such as Kroger’s planned merger with Albertsons in a deal worth $24.6 billion.”

Following regulatory approval, the merger would establish a stronger national footprint for the combined entity and accelerate the grocery chain’s profit growth in a fragmented
industry that was hit hard by inflation in 2022.

Several energy deals also made the top M&A deal list in 2022 as investors sought opportunities in the energy crisis created by the war in Ukraine.

Kyle Walters, Associate Analyst, Private Equity, noted that deal count “remained above historical trends, while deal value saw a big drop from the record-setting 2021: In 2022,
7,031 B2C M&A deals closed or were announced with a combined value of $657.8 billion, marking YoY decreases of 9.5% and 31.9%, respectively.”

As noted in the report:

“After M&A value and count soared to record figures in 2021, M&A activity in 2022
reverted back toward the mean as consumers faced a set of headwinds that lowered demand for the industry. The median deal size lowered to $20.6 million, though it was still the second-highest median on record, trailing 2021’s median deal size of $23.2 million.”

Over the years, consumers “have accelerated their spending on goods and services in spaces such as leisure, retail, and hospitality.”

This has boosted B2C M&A, especially when :combined with a zero-interestrate environment, excess liquidity, and government stimuli that have previously buoyed M&A activity in the space.”

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