M&A trends for 2022

The road ahead for Mergers & Acquisitions

2021 saw robust mergers and acquisitions activity. As the year came to a close, there has been no sign that this trend of increased M&A activity will slow down. So, what trends should business owners and M&A attorneys look for in 2022? Hindsight is 2020… well, it’s 2021 but who’s counting?

The drivers of increased M&A activity

Looking back at the year 2021, the greatest drivers of the increased M&A activity were COVID’s impact both on business owners’ choice to retire or sell, and on their choice to grow into new markets through well-priced sales of companies who struggled during the shutdown and supply chain disruptions that followed.  Increased liquidity affected M&A volume driven by PPP loans, EIDL loans and low-interest rates making capital less expensive. And the change in the world of work from analog to digital, accelerated by the remote work surge that has bolstered SaaS, digital security, and other remote-work facilitation hard and software companies. 

Looking forward to 2022

It is challenging to predict the trends that will define the coming year. One thing COVID has taught the business community is that the unexpected can throw a wrench into the best-laid plans at any moment. While we can look at the past year to see how certain language and activity is affecting the M&A markets right now, these are inferences, not a crystal ball to predict the future.  One way to look at the coming shifts is to look at the changes in volume of certain terms in SEC filings in M&A transactions that have closed over the past 2 years. As we look at the 2022 market trends we can see that there are upticks in reported language in those SEC filings of M&A closings as reported in Bloomberg Law’s article here. The trends indicate that certain terms are appearing more in the last quarter of 2021 than in previous years by notable amounts.  

And because this is now year 3 of the pandemic and we show no signs of moving past it, “COVID” and “vaccine” rank among the terms which have seen marked upticks in the latter half of 2021. 

According to other surveys from MiBiz,”automotive, energy, financial services, technology and media, and health care rank as the top five most-active sectors for [2022]”. 

Environmental, Social, and Corporate Governance (ESG) and its impact on M&A volume

In addition to shifts in the interest in ESG and climate-friendly business, the Private Equity activity in 2021 has been strong. Despite impending tax legislation and increased antitrust scrutiny, business owners continue to seek to diversify their portfolios by acquiring companies that give them access to new products, services, and technologies. With PE funding more accessible than ever, the M&A landscape seems to be robust and headed for another bull year. 

The fact that the Biden Build Back Better legislation appears stalled for the foreseeable future means that increased business taxes are now pushed off into the future means that businesses who acquire or merge will not face the kind of tax bracket jump that they would have under the proposed bill. This roadblock removal may stoke the fires of the already hot M&A market. 

Overall the 4 major players in the 2022 M&A market can be culled down to: 

1: A hot Private Equity Market

In 2021, PE transaction value rose more than 55%

2: ESG forces

Businesses may consider purchasing or divesting assets to align with ESG. Practically speaking environmental factors will affect the future of business and strong ESG will allow businesses to better adapt to those shifts.

3: Remote work

Digital transformation of analog processes means more investment in SaaS companies and other cloud-based initiatives.  From cyber security to remote teams management, digital is the way forward.

4: Inflation

The sharp spike in inflation may mean a temporary slowing of M&A activity, though the inflation between 2007 – 2009 did nothing to curb Mergers and Acquisitions. This inflationary bubble is likely to dissolve with low interest rates still in place once the supply chain issues resolve. 

To sum it all up: 

The M&A market is not slowing down.  Successful M&A strategies will involve specific industry targeting and an awareness of the elevated valuations that exist in certain market sectors. Increased deal complexity will necessitate better assessments of risk and liability as well as stringent due diligence processes and targeting of the correct funding sources for each transaction.