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Mixed Signals: US M&A FY 2022

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Despite a strong start to the year, deal activity in the US faced new challenges in 2022 as headwinds gathered.


Although the record-breaking deal activity of 2021 spilled over into 2022, headwinds in the first quarter developed into a significant slowdown during the rest of 2022, with an expectation of continued slowness as we enter 2023

This time last year, the US M&A market continued to be busy with deals in the pipeline from 2021, both deals proceeding to signing, and signed deals in the process of moving to closing.

However, it was evident from early in 2022 that new M&A activity was going to be down significantly from 2021. Cracks were already beginning to show the year before, as the Federal Reserve's language took a more hawkish turn. Talk of inflation being "transitory" shifted. By March, the Fed had made its first interest rate hike in four years. By mid-year, the S&P 500 had entered a bear market.

Since first tightening its monetary policy, the central bank has raised the federal funds target rate by a full 425 basis points (bps). This is the fastest pace of change in modern history. By December 2022, the brakes were being pumped a little less, rounding off the year with a 50 bps increase.

Nevertheless, Fed chair Jerome Powell's language remained resolute at a December 14 press conference announcing the increase: "We have covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do."

Officials forecast up to a total three-quarter point more in interest rate increases this year—the Fed's policy extending longer than many had anticipated. Some are still hopeful that a pivot is not far away. Bond markets have been calling the Fed’s bluff with two-year US Treasury yields peaking in November and dipping below the federal funds rate.

As inflation shows signs of rolling over and economic growth stalls, opinion is divided over what 2023 holds in store—a soft landing or a hard landing. Even if the Fed eventually walks back its recent comments with a course correction, that would suggest that it has overshot the mark.

What is clear is that the first half of 2023 will not carry with it the spillover momentum seen in early 2022, and some investors are bearish on how 2023 will fare. Nevertheless, another camp remains cautiously optimistic. Taken as a whole, 2022 put in a solid performance as compared to historic performance. The real story, however, is that deal activity trended down with each successive quarter as valuations fell, corporate equity issuances became less attractive and debt financing was increasingly costly and less accessible.

As the articles in this report demonstrate, we do not see an early return to a busy M&A market. Opportunistic strategic M&A will dominate until questions regarding a recession are answered and confidence in the stock market returns.

US M&A in review: Momentum can only take you so far

M&A started strong in 2022 with robust deal activity and megadeals dominating the landscape that was largely the result of unprecedented spillover from 2021. But then, things took a turn and deals stalled in the second half of the year, as shifting macro-economic conditions began to take hold.


Private Equity in focus

The US private equity (PE) market in 2022 aligned overall with the broader M&A trend—activity eased off considerably, year-on-year, but remained above historic levels—and like the M&A market at large, it tailed off as the year progressed, but what does this mean for the year ahead? 

Manhattan, NY


Sectors overview: M&A activity ebbs across

With some rare exceptions—namely in the oil & gas and energy sectors—deal activity was down in 2022 as a sense of fatigue set in following a prolonged period of high deal activity and as inflation and rising interest rate concerns took center stage.

oil pump jack

Technology leads the charge yet again

Technology continued to drive M&A activity in 2022 despite the odds being stacked against the sector.


PMB performs as pharma groups repurpose their portfolios

After a year of historic profits in 2021 following the mass roll-out of COVID-19 vaccines and related treatments, big pharma companies armed with cash for deals have been shifting their attention.


A flurry of activity early in 2022 sees real estate outperform

Real estate has historically shown resilience during challenging economic periods and is considered a reliable hedge against inflation—but not all assets are created equal, and dealmakers were highly selective in the transactions they pursued in 2022.


In Focus

Decisions from Delaware

Notable decisions from Delaware courts

In the second half of 2022, Delaware courts issued several decisions affecting M&A deal-making.

Supreme court of US


Possible return to “normal,” but it could take a while yet to get there: Six M&A trends for 2023

After peaking in 2021, the 2022 US M&A market was always going to seem slow by comparison—but what is likely to drive activity in the months ahead?

Manhattan, NY
Oil pump jack

Sectors overview: M&A activity ebbs across the board

With some rare exceptions—namely in the oil & gas and energy sectors—deal activity was down in 2022 as a sense of fatigue set in following a prolonged period of high deal activity and as inflation and rising interest rate concerns took center stage

2 min read

The top-five sector rankings were largely unchanged for 2022. The technology sector once again led deal activity, with 2,589 transactions worth US$612.6 billion. This represents an 11 percent and 40 percent year-on-year decline, respectively.

The second leading sector was pharma, medical and biotech (PMB). A total of US$254.7 billion worth of M&A transactions were announced—a 20 percent drop compared with 2021. Volume in the sector was down by only 2 percent year-on-year, with a total of 1,187 deals.

The steepest fall among the top-three sectors was seen in industrials and chemicals (I&C), which came in third behind technology and PMB. I&C was responsible for US$146.3 billion in aggregate deal value with a total of 1,060 deals, resulting in a 50 percent decline in deal value and 20 percent decline in deal volume compared to 2021 figures.

Although industrial and manufacturing output, in particular, is tied to consumer demand, which remained remarkably robust through 2022, dealmakers pulled back as a weaker economic outlook came into view. Companies in the I&C sector typically have high fixed costs because they require expensive equipment, facilities and maintenance to produce products and components, which can leave them exposed to rising costs and falling demand.

Looking further down the list, the real estate sector stands out for its comparatively robust year. Consistent with past trends, it saw relatively low deal volume compared to other sectors, with 91 deals recorded, up 3 percent year-on-year. However, in terms of value, the sector jumped from eighth position in 2021 to fifth place in 2022 despite a year-on-year decline in deal value of 17 percent, with US$100.9 billion in deals.

It is also worth noting that the sectors that have seen the largest uptick in M&A volume year-on-year are oil & gas (up 19 percent), energy (up 21 percent during the same period) and mining (up 15 percent). In all three cases, their 2022 activity is connected to the price of crude oil (which, while it has declined considerably since peaking mid-year, remains well above the average seen in the past eight years) as well as the ongoing energy transition, both of which have driven deals. The resilience of oil & gas and energy sector volume seen in 2022 is likely to have staying power. Producers in the sector are equipped with cash and highly motivated to repurpose their portfolios amid the ongoing energy transition.

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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