Global Mergers and Acquisitions: Record-breaking 2021

Tawfik Jaroudi

Tawfik Jaroudi

LOS ANGELES , January 3, 2022 () –

Global mergers and acquisitions registered unprecedented activity in 2021, as companies not only tried to scale their businesses and cut costs through achieving greater synergies, but also attempted to adapt to supply chain disruptions as well as changing consumer preferences. 

At the end of Q3, global merger and acquisition deals were on pace to record the highest level of annual activity in terms of the number of transactions, as well as total value. According to a report by Pitchbook Data, more than 27,000 deals with a cumulative value of US$3.4 trillion were completed year-to-date. This comes on the back of an increase in major US and European indices, up 30% year-over-year. Despite large strategic buyers comprising most of the deal activity, private equity firms have been making advances in the space, accounting for 40% of all deals count and value. Global economic recovery from the COVID-19 pandemic is driving a return in business travel as economies adapt to life with the virus. This, coupled with rising stocks, cheap financing, and increased cash on balance sheets, leads to confidence in future predictions, and in turn, more willingness to pursue larger deals compared to last year. It is worth noting that the high stock prices have had a significant impact on recent transactions, as nearly half were paid with a combination of equity and cash or entirely with stock.  

A breakdown of global numbers shows that M&A activity in Europe continues to trend higher at a robust pace, as 3,815 deals worth approximately US$411.2 billion was recorded in Q3. That is an increase of 58% and 63.5%, respectively. Also, the first three quarters of 2021 registered the largest volume of deals ever recorded, at 12,182. With another quarter left before year-end, that number is just barely lower than the previous record of 12,527 set over four quarters in 2015. The same is true for the total value of deals as well, with US$1.3 trillion worth closed through Q3, a little lower than the record of US$1.4 trillion set over four quarters in 2018. These substantial numbers can be attributed to the combination of strong capital markets, increasing vaccination rates, consumer spending, and easing COVID restrictions. This is a positive indication considering European GDP has not yet returned to pre-pandemic levels. The economy is still reeling from supply chain bottlenecks, energy shortages, and the expected tightening of monetary policy.  With that said, macroeconomic indicators such as GDP rates and labor market figures are encouraging for the M&A space, as they point to a solid economic recovery and future growth.

According to Pitchbook Data, firms are looking at mergers and acquisitions to digitize businesses and accelerate growth through revenue and cost synergies. An example of this is the acquisition of Denmark-based Nets by Nexi in Q3. The deal, valued at 7.7 billion euros, established the largest payments company in Europe while quadrupling Nexi's European footprint and is expected to generate 170 million euros worth of synergies per year.

As for North America, M&A activity has also continued on an upward trajectory in Q3, with 4,609 deals closed in the quarter for a combined value of US$708.3 billion. Like Europe, these figures are on course to surpass the previous annual record. 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.

Nevertheless, the lockdowns in China and the recent policy changes, as seen with the crackdown on the tech industry last year, will be a source of uncertainty in the global M&A space.

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