M&A Analyst Roundup: Global deal-making activity is on the rise as firms look to digitize their businesses, accelerate growth through revenue, cost synergies; appreciation of US, Canadian dollars, expanding antitrust policy may pose potential hurdles

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LOS ANGELES , January 7, 2022 () –

According to Pitchbook Data, firms are looking at mergers and acquisitions to digitize businesses and accelerate growth through revenue and cost synergies.

M&A activity in North America continued on an upward trajectory in Q3, with 4,609 deals closed in the quarter for a combined value of US$708.3 billion. With the economy continuing its recovery as stock prices trend higher and the availability of capital is substantial, dealmakers are moving forward regardless of inflationary pressures in the US and Canada and escalating labor shortages.

A potential headwind for North American firms is the continued appreciation of the US and Canadian dollars against major global currencies. Worries that this trend may be prolonged are on the rise in the face of a combination of expected rate hikes by the Federal Reserve in 2022 or 2023, economic strength in North America, and a slower recovery in the developing world. A stronger dollar will attract North American buyers to look for targets abroad, but at the same time, it will discourage foreign buyers from looking for North American acquisition targets.

Another potential hurdle is the expanding US antitrust policy. The Federal Trade Commission recently announced the antitrust review will now include the effects a transaction will have on the labor market, cross-market, and the post-transaction impact on private equity and venture capital ownership, according to Fenwick & West, retrieved from Pitchbook Data. This means that even if potential deals do not cause market concentration, they will still be scrutinized for other factors. However, this policy does not seem to have a short-term effect, as companies continue to execute deals without regulator approval. An example of this was when DNA sequencing company, Illumina, closed a US$8 billion vertical acquisition of Grail, a cancer-detection start-up, despite a pending EU Commission investigation and an FTC lawsuit.

Looking ahead, the global M&A trend is expected to continue to grow as key drivers remain intact. Private equity firms will keep transaction activity afloat since they are under pressure to utilize cash and make acquisitions, unlike larger corporations. According to CNN Business' data retrieved from Pitchbook Data, global private equity firms have approximately US$1.5 trillion in highly liquid marketable securities looking to be invested.

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