Last year in 2021 we saw global mergers and acquisitions (M&A) hit all-time highs. According to PricewaterhouseCoopers (PWC) there were approximately 62,000 publicly announced deals in the year 2021. Those 62,000 global deals marked an increase of 24% from 2020. The value of those publicly disclosed deals came out to a total of $5.1tn. What led to 2021 being one of the highest years on record was a combination of several different things. As we can assume the pandemic created a lot of these variables we are used to seeing in a certain range end up changing. Demand in technology went up along with data-driven assets, interest rates were low, and capital was easier to access than ever before. The opportunity to invest, take risks, and borrow money was sitting near all-time highs.
As things start to shift in both the M&A world and the financial world what can we expect to see for 2022? Over the past several years we have watched low operating costs, lower regulation and taxes, and low-interest rates create a perfect formula for both markets to increase. Let’s take a look at both the M&A world and the financial world below. As we break each one down we expect to see the trend change slightly for the financial markets, but maybe not so much in the M&A market.
M&A Market Trend For 2022
Low operating costs, lower regulation, and taxes, and low-interest rates that contributed to record highs in 2021 will still be influential in transactions and deal-making for 2022. Those are not the only determining factors of what we will see in 2022 though. We expect to see competition between corporations, private equity (PE), and special purpose acquisition companies (SPACs) which will create high valuations. PE firms seemed to have ramped up their numbers by doing not just more deals but bigger deals. PE firms were responsible for roughly 45% of value in deals done in the year of 2021, which is an increase from their previous 30% over the last 5 years prior to 2021.
Since we’ve seen such great market conditions we expect to see the corporate side look to rebalance their portfolios for longer-term growth and profitability by focusing on divestitures. As corporations remain competitive we will be watching for a push towards digital, and innovative business models which will continue to drive M&A transactions.
Technology-focused deals will continue to dominate the landscape as businesses will compete to stay innovative and work towards transforming their business models. Along with the technology industry, our team at IBB is seeing a strong push in the staffing and recruiting area as well. With so many businesses facing difficulties finding employees and keeping employee retention high, they start to seek help from staffing and recruiting companies. Like many smart businesses do, these staffing and recruiting companies are starting to grow through acquisition and are adding to their vertical due to the demand for their services.
We truly expect to see a great amount of activity to start off 2022 and continue throughout the year. As stated on PricewaterhouseCoopers website; global PE dry powder (unspent cash on hand reserved for investing) ended 2021 at $2.3tn which is 14% higher than the start of 2021. Indicating that 2022 will see plenty more M&A deals to come.
“Increased investor capital, higher multiples, and rising interest rates are building pressure on private equity firms to generate returns. Their response is to up their game by undertaking larger, more complex and potentially riskier deals, while focusing on value creation and data-driven strategies.” – Will Jackson-Moore, Global Private Equity, Real Assets and Sovereign Funds Leader, Partner.
With opportunities flying all around us, we expect to see the trend from 2021 continue into the year of 2022. As the economy is flush with cash and ready to spend we look to see transactions and deal-making remain high. It’s an exciting time in the M&A market along with the financial stock market too. Although you would expect the two industries to mirror each other we anticipate seeing a little more volatility on Wall Street and the financial markets.
The Financial Market Trend for 2022
Like the M&A world last year, the financial market saw all-time highs as well. Will we continue to see these numbers produce as we start 2022 or will we see some sort of correction?
When you pump the economy with money you can anticipate that money will flow into the markets, as it did. Over the past two years, we watched interest rates drop, money flow into the economy, and access to capital made easier. That is the perfect recipe for assets to increase. We saw all-time highs in just about every asset industry last year. The S&P was up nearly 30% for the year 2021 which is historically high for its performance.
Along with the trifecta of low-interest rates, stimulus checks, and easy access to capital we watched as a new wave of retail investors hit the market to join in on the frenzy. What this did was led to individuals taking on more risk than we would normally see. We saw money flow from “safe” assets to “risky” assets as a large portion of retail investors looked to make extra gains on their investment due to the opportunity being available. Some won and some lost, like most cases, but what will we see for 2022?
We expect to see interest rates creep back up from extreme lows, access to easy capital will tighten, and a push to drive inflation back down. All of these shifts will start driving Wall Street and large investors to move their money back to “safe” assets and out of “risky” assets. Hence why we are seeing a decline in technology stocks and cryptocurrencies for the start of Q1, since they are still viewed as risky for large investors.
Growth in 2022
With all that being said about the M&A market and financial stock market it is important to realize the opportunity is there on both ends. The United States printed 40% of the money in circulation to date in the past year. The money is out there and moving around, which means transactions, investments, and deals will continue to be made. Whether you are an owner of a company looking to grow in 2022 through acquisition or a retail investor looking to position yourself for future returns, the opportunities are everywhere.
How Investment Business Brokers Can Help
Our team at IBB has our finger on the pulse of the market at all times. We can spot these trends with the mergers and acquisitions world from being in the heart of it each day. We take extreme pride in helping our buy-side and sell-side clients capitalize on these trends. We have relationships with banks, lawyers, and business owners all over the country and we are eager to assist you with your next step. Whether that be a valuation on your company, going to market, or needing assistance with financing a deal we are here to help.