There are six key M&A trends and drivers in 2022 which are driving deal momentum these are:
The strategic need for innovation, technology and growth.
Businesses have focused on the digital transformation of their operations over the past several years. Catalyzed by the pandemic outbreak, the speed and scale of the change has significantly increased. A strategic shift to digital, innovative and disruptive models will continue to be an important driver of deals across sectors, as businesses are seeking new ways to grow revenue, increase efficiencies and futureproof their operations.
The era of the pivot.
From local independent businesses to large global enterprises, companies that have successfully navigated the COVID-19 pandemic have often pivoted to a business model that is conducive to short-term survival, long-term resilience and growth. Increasingly, traditional companies are pursuing transformative deals to reposition themselves in the new post-pandemic paradigm and align their portfolios to long-term trends.
Divestitures to unlock value.
Corporate carve-outs and divestitures were an increasingly important factor in 2021 and will continue to be in 2022 as companies look to unlock value, simplify portfolios and strengthen balance sheets. Companies realize the value of being nimble, with the ability to quickly react to an ever-changing environment and potential disruption. In some sectors, the desire for greater financial and operational agility now appears to outweigh the traditional benefits of scale and conglomeration. This fundamental reorientation can, to some extent, be attributed to the resurgence of shareholder activism but should primarily be seen as a product of a world-changing at break-neck speed.
Resilient and optimized supply chains.
Companies continue to leverage M&A to build agility and resilience against prevailing headwinds. Since the COVID-19 pandemic exposed the many vulnerabilities of global supply chains and third-party vendor ecosystems, companies are increasingly shoring up their supply chains to reduce lead times and build greater resilience. We expect onshoring, nearshoring and vertical integration – both upwards, to secure key raw materials or components, and downwards, to control how products are distributed – to drive deal activity in 2022 and beyond, particularly in the manufacturing, pharmaceutical and medical devices sectors. In addition, we see growing interest in supply chain security and risk management and in process optimization – especially data-driven, AI-powered and automated solutions.
Rising impact of ESG as a value and deal driver.
The ESG agenda, now climbing toward the top of private company strategies and M&A decision-making, may generate significant deal activity going forward as businesses pivot to improve their environmental footprint and invest in technology and innovative solutions to help accelerate the shift to a sustainable, circular economy. ESG is no longer a fringe concern and will only continue to grow in importance. Environmental, social and governance factors are being integrated into business models across sectors; ESG driven M&A is an important means to create growth, gain a competitive edge and is key in establishing stakeholder trust. ESG is increasingly regarded as a key lever of value and return, and a strong profile opens access to capital, at more favourable terms, as ESG considerations gain more influence on capital allocation decisions and credit ratings.
Sponsors and SPACs putting capital to work.
Corporate cash remains at record levels; debt financing is cheap and readily available (for now). Private equity firms were a major driver of the deal flow in 2021 and will likely continue to gain share. They have replenished their coffers through a torrid fundraising spree, they continue to have record levels of dry powder to deploy and in some cases, they have an advantage over strategics in the current tougher antitrust environment. Even though the popularity of SPACs has faltered, about a quarter of SPAC capital is set to expire at the end of 2022 which will likely add billions to dealmaking across a range of sectors.
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