For M&A in North America, Adaptation Meets Optimism

North America (NA) continues the trend of strong mergers and acquisitions (M&A) activity it carried from 2021 into this year. From our vantage point, the M&A pipeline for the Northeast in the U.S. looks more than robust, and Canada is looking strong as well.

There’s a host of factors helping to drive new deals in the region. First, corporate carve-outs are helping firms to simplify portfolios and create healthier balance sheets as corporate boards conduct portfolio reviews focused on divesting non-core assets. C-levels appear to be emphasizing agility to adapt to the current market.

Financial sponsors are also armed with historic amounts of dry powder, allowing an acquisition spree to continue and nurture a buy-and-build strategy. Special purpose acquisition companies (SPACs) continue to be a pillar in that strategy, and environmental, social and corporate governance (ESG) is likewise gaining momentum here and fueling activity.

Strength in numbers

Partnerships have come into focus, particularly as more acquirers look to expand M&A activity and boost attractiveness to potential targets. Labor shortages and increased competition for talent mean C-Levels need to ensure their M&A strategy and vision are clear.

Meanwhile, competition for qualified assets remains high. Demand for new tech capabilities and underlying innovation continues to grow, and such targets have become heavily sought-after by those with a ready chest of dry powder.

Technology, Healthcare, Media and Energy are the most promising sectors as we forge ahead into 2022. Utilities are especially strong in the Canadian market. Key data on sector trends for the region are detailed in the SS&C Intralinks Deal Flow Predictor for Q2 2022. The report is independently verified as a highly accurate six-month forecast of M&A, compiled by tracking early-stage M&A transactions globally that are in preparation or have begun due diligence.

Conclusion

There are, though, potential speedbumps to M&A growth. Antitrust enforcement may have a dampening effect on deal optimism. To compound the matter, inflation has reached a new high in the U.S. and supply chains, still aching from the effects of the COVID-19 pandemic, are still experiencing disruptions. Another challenge is the Federal Reserve approving a 0.25 percentage point rate hike on March 16, the first increase since December 2018.

Also, the current geopolitical environment may trigger cause for concern. The invasion of Ukraine in March and international sanctions on Russia have the potential to create a sea change that affects global markets. Time will tell.

Overall, however, the client mood in NA remains akin to the strong 2021: plenty of optimism. Clients are making talent retention a priority, as well as capturing revenue synergies and boosting their ESG profiles to continue growth into Q2.