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M&A in Q4 2022: The Path of Resilience Continues

Dealmakers globally are managing pipelines and volatility, despite macro headwinds.

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Although early-stage Q4 2022 data forecasts a more neutral outlook for M&A activity compared to the record-level volume of Q4 2021, deal activity across the globe saw a material uplift in Q2 2022, as dealmakers reengaged the markets, pricing in the headwinds in this challenging environment.

Private equity (PE) was among the most active segments as sponsors know all too well that the record USD 2.3 trillion in estimated dry powder must be put to work, while qualified sellers are gearing up to sell assets at a record-keeping pace.

According to the just-released SS&C Intralinks Deal Flow Predictor for Q4 2022, pre-announced Q4 announced deal volume is anticipated to surpass Q3 2022 volume by low double digits. Simply put, acquirers saw a strong spike in assets coming to market and took aggressive growth postures in Q2 2022.  

Inorganic growth as a long-term strategy

With valuation impairments continuing due to a confluence of factors — such as rising inflation at 40-year highs and the end of cheap financing — dealmakers have been unyielding in utilizing inorganic strategies to build value for companies. Provided, of course, that attractive targets would need to prove profitable or possess current, valuable intellectual property (IP) to match the rising costs of acquiring and running a business.

Keep calm and merger on

As inflation, rising interest rates and recessionary issues continue to top the list of global challenges, dealmakers are understandably concerned about the impacts on the market and overall valuations.

However, it’s important to note that insights from our global deal desks indicate dealmakers continue to take aggressive growth positions while utilizing exit opportunities where available.

Our numbers also suggest Europe, the Middle East and Africa (EMEA) and the Asia Pacific (APAC) region seem to have found their footing in these uncertain times and are experiencing moderate growth and stabilization compared to previous quarters. China and South Korea, for instance, saw signs of overperformance compared to previous periods despite climate, supply-chain and lockdown headwinds. Similarly, dealmakers are still heavily investing in EMEA. And with Russia’s invasion of Ukraine rattling the world’s economy, EMEA’s early-stage, healthy deal flow predictions can be viewed as an indicator of more stable times to come.

With cautious optimism, we anticipate stabilization in early-stage M&A activity through the remainder of the year as second-quarter deal flow showed dealmakers adapting to challenging conditions and taking advantage of market opportunities.

Christophe Montane