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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


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

What's in store for 2022?

Five factors that will shape dealmaking over the coming 12 months

5 min read

Last year will be a very tough act to follow. M&A values and volumes soared on the back of confident public markets, strong deal financing options and a private equity industry flush with cash.

What follows are five key trends that will shape the direction of 2022.


1. Regulation lengthens deal processes

Regulatory scrutiny has so far failed to dampen M&A appetite, and we expect that to continue to be the case. However, it may slow down the progress of some deals. The M&A process has become more complex over the past year, as antitrust policy changes have extended the FTC's scope and timelines, the SEC has focused increasingly on enforcement actions and CFIUS has brought in additional resources to scrutinize deals involving overseas parties.

A more aggressive regulatory regime requires dealmakers to understand early on where there may be regulatory hurdles to clear. Dealmakers may need to potentially pre-empt these with filings at the terms sheet stage—and in the case of cross-border deals, consider the appropriateness of voluntary filings.


2. Interest rates start creeping up

Unprecedented stimulus packages put in place to counter the economic effects of the pandemic, plus a strong rebound in demand and supply chain issues, have all resulted in steep price increases, with inflation hitting levels not seen for decades. While this could be a temporary phenomenon caused by the release of pent-up demand accumulated during lockdowns, the pace of increase has caught some by surprise. Indeed, the Federal Reserve has already indicated that it is sharply reducing its monthly bond purchases. Its next move is likely to be on interest rates, with as many as three rises forecasted for 2022.

This clearly has an impact on the cost of deal financing and, depending on the pace and scale of interest rate rises, it may decelerate the M&A market somewhat. However, with interest rates very low by historical standards and significant dry powder among private equity funds, we expect the impact on deal flow to be relatively small, at least through 2022.


3. Energy transition drives deals

In the same way that digitalization has boosted technology M&A, the increased urgency around energy transition will create ever more opportunities for dealmakers in 2022. President Biden's US$1 trillion-plus infrastructure package prioritizes clean energy investment, and societal shifts are encouraging businesses to consider their role in mitigating or preventing climate change.

As a result, M&A involving liquefied natural gas assets and electric vehicle-related companies has already picked up. We anticipate that this will happen across the broader energy and infrastructure sectors, and we expect to see interest in clean tech increase significantly among investors and acquirers.


4. De-SPAC mergers will continue

After a record-breaking run for SPAC IPOs in 2021 (albeit at a more moderate pace from Q2 onwards), the race is on for sponsors to find attractive public-ready targets.

With a typical two-year period within which to find deals, competition for the best companies will be fierce, and we may see more sectors targeted beyond the white-hot technology and healthcare spaces.

De-SPACs could also provide a strong exit route for private equity and venture capital firms, and we may start to see triple-track sales processes that run the IPO, de-SPAC and M&A options alongside each other.

Yet, given the competition for deals, as we move toward the end of 2022, it is also likely that we will start to see some liquidations of SPACs that raised funds in H2 2020. That could usher in a welcome flight to quality in the SPAC market, with investors backing only experienced and high-quality sponsors. Increased regulatory scrutiny is also likely to raise the quality bar.


5. The possibility of a stock market correction looms large

It's a near certainty that the markets will correct at some point, but it's impossible to know when. New record highs were set in 2021, continuing a long-term upward trajectory that was interrupted relatively briefly by the precipitous fall and dramatic recovery following the global outbreak of COVID-19 in 2020. There was some volatility in the third quarter of the year, but 2021 closed well above 2020, even as COVID-19 figures ticked upwards through December. Dealmakers will be watching closely for signs of a change in direction. Some might be particularly eager to act before markets turn, while others may be more wary of pursuing deals if they expect a significant change in the short term. But every dealmaker knows that what goes up must come down, at some point and to some extent—and the maxim's urgency will only intensify the longer markets maintain their highs.

There are clearly some risks on the horizon—inflation, interest rate rises and the potential for a stock market correction. There is also the possibility of further lockdowns as new COVID-19 variants emerge, with the rapid spread of the Omicron variant at the end of 2021 a sign of how new strains can sow chaos even in highly vaccinated countries. However, these risks are baked into many deals and the market has shown that stay-at-home orders have had little effect on dealmaking appetite. There is also increasing optimism that the Omicron variant may signal the beginning of the end of the pandemic. As a result, we believe that conditions remain in place for continued high dealmaking activity, at least for the first half of the year and potentially well beyond.



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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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