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Record breaker: US M&A 2021

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US M&A had an extraordinary year in 2021, with total deal value reaching US$2.6 trillion—surpassing US$2 trillion for the first time

M&A roars into 2022 on momentum of a record-shattering year

Challenges loom—including the possibilities of tighter regulations, rising inflation and a stock market correction—but markets show little sign of slowing down

The value of US M&A blew past the US$2 trillion mark in 2021, ending the year more than 30 percent above the previous record set in 2015. US deal value reached US$2.6 trillion, twice the value of 2020, and volume set a new record at 7,896 transactions.

Confidence reigned among dealmakers as stock markets continued to rise; increasing numbers of SPACs sought merger targets; and private equity houses set new records, deploying some of the sector's historic levels of dry powder. All of which was underwritten by flexible and cheap debt financing.

Technology was a major driver of M&A, fueled by pandemic-related trends that continued to accelerate deployment of digital technologies across all sectors. The tech sector itself led the sector charts. Companies with product mixes boosted by the pandemic, including those in the pharma and healthcare sector, turned to M&A to complement and add to their existing business portfolios.

Despite a continuing positive outlook, dealmakers will need to keep potential risks in mind in 2022. Under the Biden administration, CFIUS went on a recruitment drive, and it will clearly continue to take a more aggressive stance across sectors, particularly when deals involve technology.

Indeed, regulatory scrutiny is tightening from a number of angles. The Securities and Exchange Commission under chair Gary Gensler is taking a tougher stance on enforcement and has its sights set on SPACs, cryptocurrencies and ESG. And the Federal Trade Commission has announced far-reaching antitrust policy changes that may require companies that reach settlements to observe a ten-year mandatory clearance period on new acquisitions and disposals—the new rules would even apply to buyers of affected assets.

This increasingly tough approach to regulating M&A has so far had little impact on dealmakers' appetites for transactions—although new rules may eventually render some deals less attractive.

In response to recent inflation, the Fed will increase interest rates, which could pose another challenge for dealmakers. But given that rates are so low by historical standards, increases are unlikely to have any direct significant effect on M&A for most of 2022.

One of the biggest questions is whether stock markets will continue to hold up. A correction seems inevitable at some point, but it's unclear what might trigger one in the foreseeable future. For example, markets seem to have shrugged off concerns related to the emergence of the Omicron variant of COVID-19—at least at the time of writing. And private equity still has a mountain of capital to deploy. Recent events, however, suggest that markets will be volatile.

As a result, although regulatory hurdles continue to multiply, we expect 2022 will be another strong year for US M&A, with robust activity through the first half and possibly well beyond.

 

Surging M&A surpasses expectations

All the stars aligned in 2021, creating a confident and exceptionally busy M&A market

Record breaker: US M&A 2021

Record year for private equity dealmaking

Transaction values more than doubled year-on-year, as firms deployed ever-larger amounts of dry powder

Record breaker: US M&A 2021

What's next for SPACs?

Dynamics may be changing as the focus shifts to de-SPACs and regulatory scrutiny intensifies

Record breaker: US M&A 2021

Sectors

Sector overview: Strong M&A activity pervades nearly every sector

In what was a stand-out year, M&A picked up the pace in almost every sector

Record breaker: US M&A 2021

Oil & gas M&A trends up due to recovery in demand and the pressing need for clean energy

Dealmaking may continue to rise, as price volatility abates and companies embrace energy transition

Record breaker: US M&A 2021

Technology M&A continues record run

The pervasiveness of technology, particularly since the pandemic, continues to drive deals to all-time highs

Record breaker: US M&A 2021

Pharma and healthcare deliver strong results

Despite the absence of megadeals, M&A in the sector climbed from 2020 levels thanks in part to strong PE and SPAC activity

Record breaker: US M&A 2021

Real estate deals come back to life

After dropping in 2020, real estate M&A ramped up significantly in 2021

Record breaker: US M&A 2021

In Focus

Antitrust: Extended timelines and broader scope

The Federal Trade Commission is taking an increasingly stringent approach to antitrust investigations

Record breaker: US M&A 2021

Cross-border deals face increased CFIUS scrutiny

Increased sector scope and concerns around a more aggressive approach to identifying non-notified transactions is leading to rising numbers of filings

Record breaker: US M&A 2021

SEC enforcement ramps up

Dealmakers should be braced for a more aggressive stance under Chair Gary Gensler

Record breaker: US M&A 2021

Financing likely to continue largely as is, despite inflationary worries

Borrower-friendly terms over the past few years have helped boost M&A totals—and a number of factors suggest the financing will not change dramatically in 2022

Record breaker: US M&A 2021

Good security practices for data and networks are essential to M&A success

With data privacy laws tightening and cyberattacks on the rise, due diligence of technology networks and data processes should be a top priority for dealmakers

Record breaker: US M&A 2021

Notable decisions from Delaware courts

In the second half of 2021, Delaware courts issued several decisions affecting M&A dealmaking

Record breaker: US M&A 2021

What's in store for 2022?

Five factors that will shape dealmaking over the coming 12 months

Record breaker: US M&A 2021
Record breaker: US M&A 2021

Financing likely to continue largely as is, despite inflationary worries

Borrower-friendly terms over the past few years have helped boost M&A totals—and a number of factors suggest the financing will not change dramatically in 2022

Insight
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2 min read

Flexible and attractively priced financing has been a driving force of the M&A market for a number of years now, a trend that even the pandemic did not reverse. Persistently low interest rates have helped keep borrowing costs low, but rising inflation has prompted concerns that the US Federal Reserve may undertake measures to tighten monetary policy on a faster basis than previously projected.

The US consumer price index rose by 7.0 percent in 2021—the largest annual increase since 1982—with many sectors, including gas, food and shelter, registering substantial jumps. Even before the release of these figures, the Fed had already indicated that it would accelerate the tapering process for its quantitative easing program and that interest rates may rise sooner than it had anticipated earlier in the year.

Despite those headwinds, we see a number of factors that should underpin a continued robust finance market for M&A dealmaking. Although consumer price inflation is at a four-decade high, there remain reasons to believe it is unlikely to continue at this pace through 2022. For one, US savings rates are trending down (they were 7.3 percent in October 2021, substantially lower than the 10.6 percent seen in July 2021), which suggests that wage inflation should stem as people feel pressure to return to the labor market.

There are also significant structural factors that will continue to drive strong deal lending volumes. Globally, private debt funds were sitting on US$364 billion of dry powder as of July 2021, according to Preqin figures, and the number of funds continues to increase—there were more than 651 funds in the market, targeting US$295 billion, more than double the totals seen in January 2017. Coupled with the firepower of private equity, this will lead to enduring high levels of competition for deals, which should keep pricing and terms competitive. Additionally, private equity sponsors' continued focus on buy-and-build transactions to generate value will likely translate into a continuation of strong demand for incremental debt to finance the growth of existing platforms.

While higher inflation and burgeoning labor costs may yet put pressure on borrowers' balance sheets, sponsor-backed businesses have generally thus far been successful in passing these costs on to customers. Another mitigating factor is that we are now seeing longer maturities on financing arrangements, as borrowers seek to lock in attractive terms and pricing—three- to five-year tenors are now being pushed to up to six or even seven years.

Overall, we are cautiously optimistic that—absent a major shock—the financing market will continue to be highly active, at least through H1 2022 and possibly beyond.

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