In early February, SS&C/Intralinks (in conjunction with Mergermarket) surveyed over 300 dealmakers located across the world regarding their outlook for deal making this year. Here are some of their conclusions in the study:
In the first three quarters of 2021, USD 2.1 trillion was invested across 6,494 deals in North America. From a volume perspective, this puts the region, which is dominated by the U.S. market, in a similar range as Western Europe. But in value terms, no other region comes close, and this is a high not previously seen in North America.
The scale of the U.S. government and Federal Reserve’s stimulus program rapidly brought markets back to life following the H1 2020 collapse in stocks and M&A markets. Since then, activity has been on a tear in the U.S., this is not expected to abate in 2022.
Caveat One: Of course, we must realize that this survey was completed prior to the Russian invasion of Ukraine, and the subsequent shocks to the energy sector/stock market and the impact this may have short-term on U.S. GDP. This is not to mention the sheer human tragedy we are witnessing on a daily basis and the impact that may have on buyer and seller confidence in the shorter term.
According to analysis from GlobalData (a leading data and analytics company): The ongoing Russia-Ukraine conflict is expected to affect the completion of announced or planned cross-border mergers and acquisitions (M&A) deals involving targets based in Russia or Ukraine.
Aurojyoti Bose, Lead Analyst at GlobalData, comments: “The deal-making fundamentals remain unconducive for foreign acquirers at least for the near future as no buyer likes uncertainty and market volatility. Market volatility and an uncertain business environment on the back of the ongoing war may prompt foreign buyers eyeing Russian or Ukrainian targets to withdraw or revisit their acquisition strategies.”
However, it is unclear what impact this “uncertainty” may have on North American deals. Certainly, it will likely cast a pall on buyer activity in the next few quarters in European markets. Yet, as we have seen in the past, the U.S. and Canada are two of the safest markets to make acquisitions in, even if we do shave a few points off GDP over the next two quarters due to skyrocketing oil prices.
Buyers know that this situation too will pass, and as tragically as it appears to be impacting innocent civilians in Ukraine (and our hearts go out to them daily now), the overall demand by buyers to expand market share, gain access to skilled associates, and new technology will most likely continue to drive M&A activity in North America.
Of greater concern for many dealmakers in the U.S. is the planned increase in interest rates by the Fed. A quarter-point increase in 2022 will just get us back to pre-pandemic levels, so it most likely will not hurt M&A. Larger increases in 2023 could impact M&A.
Caveat Number Two: This could of course all change if God forbid, Putin resorts to even more destructive methods in response to the brave folks of Ukraine standing their ground. Only time will tell on that front, and we pray it does not come to pass.
Again, in times of uncertainty and unknown, it is often best to stick with your plans, and if you own a privately held company in North America today, keep your eyes on the longer term. And, if shocks to the economy do impact us, now, more than ever before, you will need the guidance of Generational and its highly talented team of consulting professionals with Generational Consulting Group.
If you have any questions about how our services could help you thrive over the next few months (or even years), do not hesitate to reach out to us to speak to one of our M&A professionals. Our team is extremely experienced in guiding our clients through a myriad of other challenges over the years!
Note on Survey: In Q2 2021, Mergermarket surveyed 300 dealmakers, including 225 corporates and 75 private equity (PE) professionals. Among those, 100 are headquartered in North America, 75 in EMEA, 75 in APAC and 50 in Latin America in order to produce this report.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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