Global dealmaking is set to maintain its scorching pace next year, after a historic year for merger and acquisition (M&A) activity that was fueled largely by easy availability of cheap financing and booming stock markets.
Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007, Dealogic data showed. The overall value of M&A stood at $5.8 trillion in 2021, up 64% from a year earlier, according to Refinitiv.
Flush with cash and encouraged by soaring stock market valuations, large buyout funds, corporates and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as all-time records tumbled during each month of the year.
Investment bankers said they are expecting the dealmaking frenzy to continue well into next year, despite looming interest rate hikes.Higher interest rates increase borrowing costs, which may slow down M&A activity. However, deal advisers still expect a flurry of large mergers in 2022.
Accommodative monetary policies from the U.S. Federal Reserve fueled a stock market rally and gave company executives access to cheap financing, which in turn emboldened them to go after large targets.
The United States led the way for M&A, accounting for nearly half of global volumes – the value of M&A nearly doubled to $2.5 trillion in 2021, despite a tougher antitrust environment under the Biden administration.
The largest deals of the year included AT&T Inc’s (T.N) $43 billion deal to merge its media businesses with Discovery Inc (DISCA.O); the $34 billion leveraged buyout of Medline Industries Inc; Canadian Pacific Railway’s (CP.TO) $31 billion takeover of Kansas City Southern (KSU.N) ; and the breakups of American corporate behemoths General Electric Co and Johnson & Johnson (JNJ.N) .
According to a survey of dealmakers and advisers by Grant Thornton LLP, over two-thirds of participants believe deal volumes will grow despite challenges posed by regulations and the pandemic.
Deals in sector such as technology, financials, industrials, and energy and power accounted for the bulk of M&A volumes. Buyouts backed by private-equity firms more than doubled this year to cross the $1 trillion mark for the first time ever, according to Refinitiv data.
Despite a slowdown in activity in the second half, dealmaking involving special purpose acquisition companies further boosted M&A volumes in 2021. SPAC deals accounted for about 10% of the global M&A volumes and added several billions of dollars to the overall tally.
Analysts say the U.S. economy has proven resilient in the face of pandemic-related challenges, and many expect the global economy will still expand at a well-above-trend pace.
After initially tumbling in December, world stocks recovered over the holiday period as investors became reassured economies could handle the surge in Omicron coronavirus cases, and are heading back toward record highs.
“As far as COVID is concerned, for now, market participants may stay willing to add to their risk exposures, and perhaps push equity indices to new highs, as several nations around the globe held off from imposing fresh lockdowns, despite record infections around the globe the last few days,” said Charalambos Pissouros, head of research at Cyprus-based brokerage JFD Group.
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All three major U.S. stock indexes scored monthly, quarterly and annual gains, notching their biggest three-year advance since 1999.
Investors have held onto expectations for resilience in the global recovery into 2022 and the prospect of further gains if money remains cheap and corporate profitability high.
This year’s “everything rally” has seen a wall of cheap central bank cash, government stimulus and strong economic rebounds out of the pandemic make it hard not to profit from soaring asset prices.
U.S. stocks have powered the global rally as record-breaking earnings figures from Big Tech companies excited investors. This week the S&P 500 hit another record high.
Source: Global M&A volumes hit record high in 2021, breach $5 trillion for first time | Reuters
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More contents:
- What is Post-Merger Integration (PMI)?
- 4 Steps to PMI Success
- Develop a joint business capability map based on the corporate strategy
- Create full transparency of the new application landscape
- Define the best way forward for each application
- Develop application roadmap and track implementation
- Possible Challenges of Post-Merger Integration
- Technical Challenges
- Business Challenges
- The Importance of Post-Merger
Post-merger integration is the process of unifying two entities and their assets, people, tasks, and resources in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.
From an IT perspective, PMI is a complex process requiring the leadership of enterprise architects to ensure a smooth process. According to the 2021 LeanIX M&A Report, nearly 90% of EAs are involved in post-merger integration, with the following use cases named as most prevalent.
- Creating transparency of the IT landscape
- Performing application rationalization
- Building a target architecture
- Application road mapping
- Business capability mapping
- Scenario integration
