Is EMEA M&A Dealmaking a Question Mark in Q2 2022?

In Europe, the Middle East and Africa (EMEA), mergers and acquisitions (M&A) activity hit all-time highs in 2021. High levels of liquidity in the market and the necessity of many companies to carry out distressed M&A deals are a perfect combination to continue — and even grow — activity into Q2 2022.

Unlike the U.S. Treasury, the European Central Bank (ECB) has kept interest rates at zero percent (or even negative rates in some cases). This has encouraged investments and financial appeasement, especially for private equity (PE) firms which were EMEA’s main players in 2020 and 2021.

Estimates of gross domestic product (GDP) growth in European countries will act as an engine for corporate transactions during 2022. Our Global Dealmakers Report 2022, a survey of 300 globally based M&A dealmakers, has shown that many expect moderate increases in M&A activity in 2022, while almost as many expect it to decrease somewhat. While the impact of Russia's invasion of Ukraine has affected markets, deal flow is holding steady amid the volatility.

Accountability is a driver

Even just a glance at the SS&C Intralinks Deal Flow Predictor for Q2 2022, based on global deals in preparation or beginning due diligence, points out a myriad of drivers at play in EMEA's growth.

Climate goals have made environmental, social and corporate governance (ESG) a guiding principle for investors as they prioritize this area of focus. In addition, contested foreign direct investment (FDI) projects and antitrust regulators may block deals or impose remedies that will directly affect many transactions.

The pandemic effect

COVID-19 has provided a reason for some EMEA countries to avoid foreign companies’ control of critical assets in their local markets. The pandemic — and globalization — have also changed the way companies around the world get their clients.

Digital infrastructure is the present and future of our economies and will be a big player in 2022 EMEA. 5G, data centers and telecom assets will be very valuable and targets of the biggest private equity firms. The major Telco companies will need to invest inorganically to adapt.

Meanwhile, clients are slowly becoming less skeptical of in-person meetings where COVID-19 infection rates have been falling.

Sectors to watch and challenges to face

Sectors subject to innovations, like Energy, Pharma and Technology, will continue as key targets for many investors as they were in 2021. However, other sectors (e.g., Real Estate, Tourism and Banking) are expected to have the lowest growth rates this year.  

Although the COVID-19 environment has poised the agile private equity players for pandemic-era buying opportunities, an increase in regulation in Europe and some political uncertainty will be among the biggest challenges affecting M&A here this year.

Nonetheless, distressed assets will continue to be an attraction for investors in EMEA. 2021’s record year will be difficult to top, but 2022 is a prime candidate to do so based on the momentum we’ve seen thus far.