Mergers and acquisitions reached record heights in 2021.

After an unprecedented growth in the value and volume of transactions in 2021, a significant number of planned transactions, the availability of substantial capital, and ongoing intense demand for digital assets and data-driven assets indicate that 2022 could be another exceptionally productive year for the mergers and acquisitions sector, concludes PwC’s analysis of global trends in mergers and acquisitions, Global M&A Industry Trends 2022.

The current global activity in transaction making has been analyzed, and the analysis includes insights from PwC‘s sector experts to identify key trends affecting the volume of mergers and acquisitions and value multiples.

The year 2021 was record-breaking in the field of mergers and acquisitions, both in terms of the number of transactions and their value. The number of announced transactions exceeded 62,000 globally in 2021, which is an unprecedented 24% increase compared to 2020. Publicly disclosed transaction values reached a record $5.1 trillion, including 130 megadeals with individual transaction values of $5 billion or more, which is an incredible 57% increase compared to 2020, thus breaking the previous record of $4.2 trillion set in 2007.

– After a record year for mergers and acquisitions activity, everyone is wondering what’s next. Transaction making is very likely to remain at a high level in 2022, with fierce competition among corporations, private equity funds, and specialized acquisition companies (SPACs), but the largest may fall out of the market competition due to increasingly significant macroeconomic and regulatory barriers – said Brian Levy, global leader of transaction services for industries and partner at PwC US.

Although optimism remains high and a successful 2022 is anticipated, challenges caused by rising interest rates, increasing inflation, higher taxes, and greater regulation could present structural or financial barriers to closing transactions. Financial markets are already experiencing greater volatility, global supply chains continue to face disruptions, fiscal debt is on the rise, and the consequences of the pandemic are still felt globally. Learning from the pandemic experience, transaction participants should be aware that due to the new accelerated pace of change, these or other factors may become important earlier and with greater impact.

– In Croatia, and in the broader region, we are aware of an unprecedented number of completed transactions. The motives of sellers can be speculated upon, but it is interesting to see (potential) buyers from some previously less active markets such as the Scandinavian countries. I believe that part of the increased interest in Croatian companies that are the subject of transactions lies in the fact that we are approaching the introduction of the euro, which reduces the country risk (or at least its perception in the eyes of buyers) – said Damir Kecko, partner and head of the Transaction Department at PwC Croatia.

Private equity funds are demonstrating their fundraising power and increasing their market share in transaction activities.

Private equity continues to close an increasing number of larger transactions. Nearly 40% of transactions in 2021 involved private equity, compared to just over a quarter in the last five years, and companies with private equity are closing larger transactions, representing 45% of the total transaction value in 2021, compared to 30% over the previous five years. Entering 2022, private equity has increased its transaction-making capacity, reaching record levels of free private equity capital. The global value of private equity at the end of 2021 was $2.3 trillion, 14% higher than at the beginning of the year, providing more than enough funds for mergers and acquisitions activities in 2022. Although funds are abundant, pressure will increase on private equity to find ways to create value in an environment of rising interest rates, higher multiples, and ESG-related pressures.

We expect that during 2022, the role of specialized acquisition companies (SPACs) will remain significant following the resurgence of SPAC initial public offerings at the end of 2021, considering the capital available for mergers and acquisitions. With nearly 500 SPACs set to announce mergers, the short timeframe (usually two years) in which they need to close a transaction will lead SPACs to compete with private equity and corporate transaction participants for target companies in 2022 and 2023.

Such fierce competition among corporations, private equity, and SPACs will keep multiples for sought-after assets high, making the development of a reliable value creation plan through mergers and acquisitions more important than ever before.

Portfolio reviews drive sales and acquisition activities across all sectors

Regarding corporations, we expect that the strategic shift towards digital, innovative, and new business models that disrupt the status quo will continue to influence decision-making regarding mergers and acquisitions. Given market conditions that would require managements globally to think more comprehensively about value creation, CEOs will likely also focus on sales transactions as part of rebalancing their portfolios to achieve long-term growth and profitability. Factors related to environmental, social responsibility, and governance (ESG) will also increasingly influence merger and acquisition strategies throughout 2022.

Key sectors of the economy are marked by the trends described below:

• Consumer markets: Consumer preferences in 2022 will serve as a catalyst for merger and acquisition activity, as corporations and private equity restructure their portfolios to capitalize on trends such as “conscious consumerism” that create demand for new products and services and entirely new business models.
• Energy, utilities, and resources (EU&R): ESG drives strategy development across all sectors. Mergers and acquisitions will be used to rebalance portfolios and seek value creation opportunities in ESG growth areas such as renewable energy, carbon capture, battery storage, hydrogen, transmission infrastructure, and other clean technologies.
• Financial services: Competition for achieving strategic market advantage continues to drive merger and acquisition activity, with technology and innovation transactions being the most common. Continued portfolio optimization is expected to lead to sales activities and capability-driven transactions as companies seek to leverage technology and drive efficiency. Troubled assets in the banking and insurance sector could spur a wave of new transactions.
• Healthcare sector: Pharmaceutical companies are seeking to optimize their portfolios to achieve growth based on transactions that enable access to new technologies such as mRNA and cell and gene therapy. In the healthcare services area, investor interest is drawn to platforms for specialized healthcare, telehealth, companies developing technological solutions in healthcare, and data and analytics companies.
• Industrial production and automotive industry: Strategic portfolio reviews and ESG drive merger and acquisition activities, primarily transactions that accelerate digital transformation, including electric and autonomous vehicles, battery and charging technologies, additive manufacturing, next-generation materials, and production using non-fossil energy sources.
• Technology, media, and telecommunications: As traditional industries face a high degree of disruption, and innovative technologies join the dominant trend faster than expected, the technology sector will continue to experience unprecedented levels of transaction activity, as well as transaction values, as companies from all sectors seek to acquire key technology or digital capabilities.

– Mergers and acquisitions activity in 2021 was largely driven by intense demand for digital assets and data-driven assets, and we believe that technological adaptation will continue to impose itself as a necessity across all sectors throughout 2022. Companies will also seek to maintain an edge over competition and reinvest using proceeds from the sale of underperforming businesses. At the same time, transaction participants must be mindful of potential factors that adversely affect transaction closings, such as financial market volatility and macroeconomic barriers. The need for reliable value creation plans through mergers and acquisitions will be of utmost importance this year – concludes Levy.