Insights

2022 M&A Market: Good Companies Can Defy Deal Statistics

By Steven Keeler

No Crystal Ball. A Q1 2022 decline in merger and acquisition (M&A) transactions (continuing a second-half 2021 trend) coupled with economic and geopolitical worries has a lot of smart people guessing about the rest of 2022. After a record-breaking 2021, could the pullback just reflect a return to normalcy rather than a major drop off? Well, inflation and the Federal Reserve’s action on interest rates, which may impact both deal financings and economic growth, accompany other so-called headwinds. So what should we expect for the rest of 2022? And if we don’t know, how should a company decide whether to sell or hold off?“Private markets seem largely unfazed by the recent [public market] equity sell-off, which has created a buying opportunity, especially for tech-focused and cash-rich financial sponsors.” Mergermarket, Deal Drivers: Americas Q1 2022, Datasite®.

“Private markets seem largely unfazed by the recent [public market] equity sell-off, which has created a buying opportunity, especially for tech-focused and cash-rich financial sponsors.” Mergermarket, Deal Drivers: Americas Q1 2022, Datasite®.

Every Company Should be a Tech Company. Technology and software-enabled media, communications and other solutions, including financial services or “fintech” and medical (including pharma and biotech), continue to lead M&A activity. As in past cycles, however, much of the published deal data is attributable to large “mega” deals. Private equity continues to play a critical role in sustaining M&A activity. We see this as a major factor in the resilience of lower-middle-market M&A activity.

‍It’s Good to be in the U.S. The U.S. West Coast, Northeast and Southeast continue to benefit from their tech and media focus, while the more industrial U.S. Midwest is dealing with stronger macro-economic and supply chain headwinds. Technology should give even the U.S. Midwest some cover, as all things climate-change, healthcare, fintech and ESG are being integrated into manufacturing, payments and logistics across industries. Technology is converging with the entire economy.

‍Every Company Has a Price. Quarter-to-quarter and even annual deal trend comparisons may be even less helpful to 2022 predictions than in the past given the variety and pace of economic, political and regulatory changes facing businesses and investors. Every company and buyer is unique, and M&A deals will continue to get done in 2022. In fact, good deals get done during bad times. That said, deal pricing and structures will certainly be impacted by the headwinds, so sellers should be prepared to differentiate their business and story.

‍Staying the Course. The availability of capital and the demand for innovation should continue to drive deal flow and activity, barring some major geopolitical or economic turn. Companies that have an incentive to sell will and perhaps should move forward with well-planned sale processes in 2022. But they should prepare to negotiate price and terms with a more wary cast of investors and buyers. Savvy sellers will position their companies as businesses that can weather and succeed in an uncertain environment. Then, they will convince the right buyer to value their company on its own merits rather than on the basis of unpredictable deal market statistics and trends.

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