M&A market down, but hardly out, in the first half of 2022; private equity and technology demand fuel deals: PwC analysis

• Merger and acquisition (M&A) activity in the first half of 2022 resets to pre-pandemic levels of approximately 25,000 deals
• Lower valuations are expected to bring better opportunities for dealmakers to generate healthy returns, as evidenced by recent public-to-private transactions which increased by more than 50% in 2022 compared to the prior year period
• Private equity (PE) now accounts for almost 50 percent of all deal value, double the level from just five years ago as capital raised for investment reaches a record $2.3 trillion
• Over a third of deal value is invested in technology, media and telecommunications (TMT), reflecting the impact of digital transformation in driving deals

London, 28 June 2022 – M&A activity has slowed from its record-setting 2021 pace, with economic headwinds stunting deals in the first half of 2022. However, activity has merely returned to 2019 levels and dealmaking is expected to play an important role in corporate growth strategies over the next six months, according to PwC’s Global M&A Industry Trends: 2022 Mid-Year Update.

Brian Levy, Global Deals Industries Leader, Partner, PwC US, said: ‘Now is not the time to sit on the sidelines, but to reassess – even reset – M&A strategy. I fully expect to look back at 2022 as a pivotal moment where the successful dealmakers of tomorrow are determined by those who boldly execute on their M&A goals today.’

Many of the factors that underpinned the record-breaking M&A market in late 2021 and the first half of 2022 – such as supply chain resilience, portfolio optimisation, environmental, social and governance (ESG) and, above all, the need for technology to digitalise business models – will remain influential for deal-making in the second half of 2022, but the approach to how these deals are done will require a new focus in an uncertain economic environment.

With inflation in many countries hitting a 40-year high, dealmakers will need to approach due diligence with a different lens – forecasting different inflation scenarios and considering implications on market share, price elasticity, customer and supplier relationships, and employee compensation and retention.

Workforce strategy will need to be a priority in any deal as the highest wage inflation in decades, the “Great Resignation”, skills shortages, and growing stakeholder focus on diversity and inclusion will all impact future business performance.

Lower valuations are expected to provide opportunities for corporate and PE dealmakers to generate healthy returns in the current volatile market. Evidence of lower public valuations driving M&A activity is already being seen, as public-to-private transactions increased by more than 50% in 2022 compared to the prior year period.

M&A trends in the first half of 2022

Although M&A activity has slowed in the first half of 2022, it has merely reset to pre-pandemic levels, which averaged around 25,000 deals per half of the calendar year.

The M&A reset is being experienced across all major regions. Asia Pacific has experienced the largest declines, with deal volume and value each more than 30% below the 2021 peak, due mainly to macroeconomic headwinds and recent pandemic-related restrictions imposed across several major cities in China.

M&A values have also fallen back to similar levels to before the pandemic and deal values in the first half of 2022 of approximately $2 trillion are almost double those recorded in the first half of 2020–a period which also experienced high levels of uncertainty around economic conditions. The overall number of megadeals globally (deals with a value in excess of US$5bn) has declined by a third. However, the first half of 2022 wasn’t entirely devoid of large deals–in fact there were four deals with deal values in excess of US$50bn, compared to just one deal in the whole of 2021.

PE expands its share of representation in deal volumes and values

The evolution of the PE model has made it an engine for M&A – providing a plentiful source of deal-making capital. Global PE “dry powder” reached a record $2.3 trillion in June 2022 – triple the amount which existed at the beginning of the global financial crisis. This growth in capital explains why PE’s share of M&A has increased from approximately one-third of total deal value five years ago, to almost half of total deal value today.

But PE is not immune from the market volatility and growing uncertainty. Will Jackson-Moore, Global Private Equity, Real Assets and Sovereign Funds Leader, Partner, PwC UK, said: ‘PE firms face challenges from rising costs and interest rates, contracting public market multiples and falling consumer confidence. PEs will need to focus on ever more sophisticated value creation strategies such as digital transformation and cloud re-platforming along with a laser-like focus on dealing with inflationary cost increases to generate returns.’

Industry M&A trends

Current macroeconomic factors and trends are seen impacting deal-making across industries in different ways:

• Technology, media and telecommunications (TMT): Digital adoption of new technologies remains a priority – keeping TMT on top in terms of M&A investment, accounting for over one quarter of deal volume and one third of deal value in the first half of 2022. We expect technology demand will create M&A opportunities in software and in infrastructure-enabling technologies (such as 5G, data centres and the metaverse and its associated technologies) in the second half of 2022.
• Financial services (FS): The FS industry’s need for digital capabilities, combined with sustained pressure from regulators and disruption from platforms and fintechs, means M&A will continue to be a driver for transformation. It also explains why FS is second only to TMT in terms of M&A investment, accounting for almost one quarter of deal value in the first half of 2022. A continued focus on technology, the growing demand for sustainable investment options, and lower valuations will keep M&A activity high during the second half of the year.
• Consumer markets: M&A activity in the consumer markets industry for the next six months will be closely tied to how the uncertain economic outlook will impact consumer confidence and spending. Changing consumer preferences will continue to create opportunities for M&A as companies seek to transform business models and reposition themselves for future growth.
• Industrial manufacturing and automotive (IM&A): The continuing focus on technology and digitizing business models, investing in supply chains and workforce will create opportunities for M&A in IM&A.
• Energy, utilities and resources (EU&R): The continuing acceleration of the energy transition and a growing focus on supply chain security will drive M&A in the areas of critical minerals and national energy supply in the second half of 2022.
• Health industries: High demand for biotechs and innovative new technologies – such as mRNA, gene therapy, and telehealth capabilities are attracting investor interest. To achieve inorganic growth goals, big pharma will likely undertake a higher number of smaller transactions to avoid the regulatory scrutiny and complexity which larger deals can bring.

Malcolm Lloyd, Global Deals Leader, Partner, PwC Spain said: ‘We're seeing an acceleration of strategic decisions to enhance portfolio optimisation, as dealmakers divest to free up capital to focus on acquiring capabilities and transforming core business areas through M&A.’

Brian Levy added: ‘There is no doubt that dealmakers face a higher bar for success. However, we remain optimistic that the need for both speed and agility to navigate the current challenges will ensure M&A remains a strategic priority, helping companies to transform, grow and build a new foundation for their future success.’

Ends.

Notes to editors

PwC’s Global M&A Industry Trends is a semi-annual analysis of global deals activity across six industries — consumer markets (CM), energy, utilities and resources (EU&R), financial services (FS), health industries (HI), industrial manufacturing and automotive (IM&A), and technology, media and telecommunications (TMT).