M&A in North America: Uncertainty or Opportunity?

As deal teams venture into Q3 2022, the outlook for mergers and acquisitions (M&A) activity holds a lot of uncertainty. A battery of market conditions, paired with current events, is fraught with challenges. The horrific conflict in Ukraine is one of many.

While many of these issues have lingered over dealmaking since February 24, 2022, when Russia invaded Ukraine, the cautiousness of dealmakers has been compounded by the recent correction in the valuation of U.S. stocks as well as an array of other headwinds. This makes for a sensitive environment in which to conduct deals. 

Although deal flow in North America has been more measured compared to last year’s record-breaking heights, there’s still a historic amount of dry powder in global private equity — USD 1.78 trillion, as reported in February 2022 by S&P Global Intelligence — that needs to be invested. That, along with valuations starting to come back down to earth, could make for an active second half of the year in the region. 

The road ahead

Despite all the challenges in the marketplace, the M&A pipeline continues to look strong for the foreseeable future, especially in North America’s middle market. Fewer deals out in the market — coupled with the surplus of cash earmarked for investment — makes for a competitive scenario for qualified sellers. Mix in the cooling of valuations and the market could see an uptick in activity in the coming quarters.

From our vantage point, the top five industries to watch in the next quarter in North America are Financial Services, High Tech, Consumer, Industrials and Healthcare. In addition, the Travel & Leisure, Aerospace & Defense and Green Energy sectors are also worth watching.

Deal activity for Q3 2022 does have its many challenges. Rising interest rates, inflation, a volatile stock market, heightened regulatory scrutiny on deals getting approved and high valuations top the list. And of course, the Russia-Ukraine conflict and ongoing supply-chain issues seem likely to compound them all. The SS&C Intralinks Deal Flow Predictor for Q3 2022, just out, goes into the current environment in detail. If you want a highly accurate six-month forecast of the market, the predictor does an excellent job by tracking early-stage M&A transactions globally.

It’s important to recognize the headwinds that challenge deal professionals, but M&A has shown its resiliency since the start of the COVID-19 pandemic in February 2020.

Since then, M&A has refined its approach for every part of the deal cycle, learning how to leverage technology to get deals done more efficiently. Subsequently, through this evolution, look for the market to continue to adapt and uncover new opportunities we didn’t believe existed before.