Global merger and acquisition activity got off to a strong start in 2022, with the number of completed deals valued at over $100 million in the first quarter exceeding the same period last year, according to a new report from WTW.
Buoyed by historically low interest rates, increased market confidence, plentiful capital and the pursuit of transformative deals, 220 transactions were closed in the first quarter of 2022, according to WTW’s Quarterly Deal Performance Monitor. This is the second-highest Q1 result since 2008, and was achieved despite the sharp fall in special-purpose acquisition company (SPAC) deals since the second half of 2021.
The WTW report, compiled in partnership with the M&A Research Centre at The Bayes Business School (formerly Cass), found that an even higher number of mega-deals (valued at more than $10 billion) closed in Q1 than in the corresponding period in 2021 (six vs. five), when the market experienced a sharp rebound in deal activity. Foreign takeovers of UK firms also spiked to the highest level since 2015, with 13 deals completed in the first quarter.
“Pent-up demand that saw M&A reach a new peak in 2021 looks set to continue as interest rates remain low and buyers carry record amounts of cash,” said Jana Mercereau (pictured above), head of corporate M&A consulting for Great Britain at WTW. “Many businesses attempting rapid transitions in areas of climate, technology, as well as inclusion and diversity, view strategic acquisitions as a key part of speeding up this change. So while geopolitical and economic volatility may be increasing, we are still seeing significant momentum driving M&A.”
Mercereau said that slow deals – those that took more than 70 days to complete – were the best performers in the first quarter of 2022.
“When you also factor in the additional complexities of ESG, investing more time and resources to ensure quality due diligence in a potential deal – instead of moving too fast – can only help reduce risk and generate value,” she said.
One of the direct impacts of the sustained high levels of global M&A activity has been to push valuations to new highs – potentially a major factor for acquirers that struggled to unlock value from deals during the first quarter of 2022. Based on share-price performance, companies that completed deals valued at more than $100 million underperformed the World Index by 4.4 percentage points on average during Q1, WTW said.
All regional acquirers, except in the Asia-Pacific region, underperformed in the first quarter. APAC acquirers outperformed their regional index, with an overall performance of +13.3 percentage points with 46 deals closed. North American acquirers underperformed their index by -5.3 percentage points with 116 deals closed, while European acquirers underperformed their index by 4.3 percentage points with 49 deals completed.
“Geopolitical turbulence, increasing inflation, intensifying regulatory scrutiny of M&A transactions and continued supply-chain disruption present a number of challenges for companies planning to strike a deal in the months ahead,” Mercereau said. “Yet there are compelling reasons for dealmakers to be optimistic, besides the continued rollout of vaccinations and easing of COVID-19 restrictions. Global economic performance is expected to improve, despite macroeconomic headwinds, and the sheer weight of capital available to private equity firms and excess cash sitting on corporate balance sheets suggest the deals pipeline is set to stay strong for the foreseeable future.”