Merger and acquisition activity has slowed from its record-setting 2021 pace, with economic headwinds stunting deals in the first half of 2022. However, M&A activity in the first half of 2022 resets to pre-pandemic levels of approximately 25,000 deals. Over a third of deal value is invested in technology, media and telecommunications (TMT), reflecting the impact of digital transformation in driving deals, consultancy PwC says in a mid-year update of global M&A Industry Trends.
“Lower valuations are expected to bring better opportunities for dealmakers to generate healthy returns, as evidenced by recent public-to-private transactions which increased by more than 50% in 2022 compared to the prior year period.”
Private equity (PE) now accounts for almost 50% of all deal value, double the level from five years ago as capital raised for investment reaches a record USD 2.3 trillion
“Many of the factors that underpinned the record-breaking M&A market in late 2021 and the first half of 2022 – such as supply chain resilience, portfolio optimisation, environmental, social and governance (ESG) and, above all, the need for technology to digitalise business models – will remain influential for deal-making in the second half of 2022, but the approach to how these deals are done will require a new focus in an uncertain economic environment.”
“With inflation in many countries hitting a 40-year high, dealmakers will need to approach due diligence with a different lens – forecasting different inflation scenarios and considering implications on market share, price elasticity, customer and supplier relationships, and employee compensation and retention.”
“Workforce strategy will need to be a priority in any deal as the highest wage inflation in decades, the “Great Resignation”, skills shortages, and growing stakeholder focus on diversity and inclusion will all impact future business performance.”
The report says M&A reset is being experienced across all major regions. Asia Pacific has experienced the largest declines, with deal volume and value each more than 30% below the 2021 peak, due mainly to macroeconomic headwinds and recent pandemic-related restrictions imposed across several major cities in China.
- Technology, media and telecommunications (TMT): Digital adoption of new technologies remains a priority – keeping TMT on top in terms of M&A investment, accounting for over one quarter of deal volume and one third of deal value in the first half of 2022. We expect technology demand will create M&A opportunities in software and in infrastructure-enabling technologies (such as 5G, data centres and the metaverse and its associated technologies) in the second half of 2022.
- Financial services (FS): The FS industry’s need for digital capabilities, combined with sustained pressure from regulators and disruption from platforms and fintechs, means M&A will continue to be a driver for transformation. It also explains why FS is second only to TMT in terms of M&A investment, accounting for almost one quarter of deal value in the first half of 2022. A continued focus on technology, the growing demand for sustainable investment options, and lower valuations will keep M&A activity high during the second half of the year.
- Consumer markets: M&A activity in the consumer markets industry for the next six months will be closely tied to how the uncertain economic outlook will impact consumer confidence and spending. Changing consumer preferences will continue to create opportunities for M&A as companies seek to transform business models and reposition themselves for future growth.
- Industrial manufacturing and automotive (IM&A): The continuing focus on technology and digitizing business models, investing in supply chains and workforce will create opportunities for M&A in IM&A.
- Energy, utilities and resources (EU&R): The continuing acceleration of the energy transition and a growing focus on supply chain security will drive M&A in the areas of critical minerals and national energy supply in the second half of 2022.
- Health industries: High demand for biotechs and innovative new technologies – such as mRNA, gene therapy, and telehealth capabilities are attracting investor interest. To achieve inorganic growth goals, big pharma will likely undertake a higher number of smaller transactions to avoid the regulatory scrutiny and complexity which larger deals can bring.