Can Global M&A Surge Past COVID-19 in Q2 2022?

If there’s one takeaway from the newly published SS&C Intralinks Deal Flow Predictor for Q2 2022 — our quarterly prediction of mergers and acquisitions (M&A) activity for the next six months, compiled by tracking early-stage transactions that are in preparation or have begun due diligence — it is that dealmaking is unlikely to slow down globally, but there will be a cooling in some regions.

Overall, the outlook is expected to be "sluggish compared to 2021" and "not surging, but stable and relatively high." From what our clients have been expressing to us, they anticipate continued increases in M&A activity in Q2 2022 and beyond but understand the evolving deal landscape.

Regulation, meet responsibility

Two key themes are driving new deals. First, regulatory and compliance changes have potential bidders trying to gain an edge over their competitors by engaging in the due diligence process early through deal execution. This indicates that business leadership has a focus on agility.

Secondly, environmental, social and corporate governance (ESG) considerations are growing in importance. Investors are having a bigger say in where companies invest their money. In BlackRock Chairman Larry Fink’s annual letter to CEOs published in January, he stated that “companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities and their shareholders.”

In Europe, lower interest rates means that M&A is more attractive than other investments such as the debt market or fixed rent.

Asset races continue

Here are some of the terms we’re hearing about the competition for qualified, fixed assets: “Extremely competitive,” “intense” and “very active.”  

Private equity (PE) and venture capital (VC) funds are fiercely competing for investments into targets and early-stage start-ups as innovation continues to grow. 

By sector, we’re seeing the best opportunities in Technology, Renewable Energy and any sector directly relating to ESG. As a result, we have seen a lot of debt raises toward the latter in recent months.

Looking forward

While geopolitical tensions are on everyone’s minds, optimism still reigns over client mood. While there are some pockets of caution in certain parts of the world, it follows a record-making year in 2021. Still, there is a continued "end-of-the-pandemic" sentiment which we expect to bring about energy and momentum in new deals.

In Asia Pacific, travel restrictions and COVID-19 outbreaks are still getting in the way of deals. While most dealmakers have been able to execute work digitally, the contrast with most parts of the world is dampening some of the dealmaking/fundraising mood. Likewise, there is also the across-the-board acceptance that high inflation will lead to a challenging road in dealmaking given financing costs.

The other global challenge: strained supply chains. Key commodities futures have been indicating low stockpiles of the world’s most important commodities (food, energy and metals) without the usual supply response. A Goldman commodity analyst described the situation as "unprecedented."

If you want an in-depth look at the global trends affecting M&A, I invite you to download the SS&C Intralinks Deal Flow Predictor for Q2 2022 here.