Dive Brief:

• Global dealmaking last year pushed up the stock price of acquiring companies 1.4 percentage points above the return of the MSCI World Index in the first outperformance over the index since 2016, according to a study by Willis Towers Watson and Bayes Business School.
• The number of transactions worldwide valued at more than $100 million rose to 1,047 last year, a 55% increase compared with 2020 and the highest total since WTW began collecting data in 2008. 
• The volume of large deals in North America surged last year, with 614 transactions nearly doubling the 325 deals in 2020, WTW said. At the same time, the stock prices of acquiring firms outperformed their regional index by an average of only 0.5 percentage points.

Dive Insight:

As they enter 2022, CFOs considering mergers and acquisitions find a fertile landscape, with abundant investment capital, strong equity markets and low borrowing costs, according to Duncan Smithson, senior director for mergers and acquisitions at WTW.

The boom in global M&A in 2021 will surge into 2022, according to a survey of 345 corporate dealmakers in the U.S. by KPMG.

Worldwide deal value from January until mid-November this year hit $5.1 trillion, the highest level since 2015 and a 34% gain compared with all of 2020, KPMG said. U.S. transactions rose to $2.9 trillion, or 55% more than during all of last year.

Transaction levels will remain high because companies “need to remain on the offense with the competition” and “feel pressure from investors to raise their own valuations,” the dealmakers said.

Several forces during the new year shape M&A and propel it toward the record levels of 2015, according to WTW.

First, environmental, social and governance (ESG) priorities will probably drive transactions, including divestments, as companies seek to reduce their carbon emissions or embark on innovative efforts to curb climate risk, WTW said.

“We’re seeing growing demand among the general population for companies to be held to account for their ESG impact,” Smithson said in an interview. Companies are “rebalancing their asset portfolios and doing deals to ‘greenify’ their operations.”

Second, the coronavirus and trend toward hybrid work has increased the speed and scale of digital transformation and intensified competition for specialists in technologies such as cybersecurity and software engineering, WTW said. Lockdowns and a tight labor market have compelled companies to seek acquisitions that will add essential capabilities.

“COVID-19 has changed the landscape and accelerated some of the trends that we were seeing already,” Smithson said.

Third, companies in 2022 will likely acquire firms that increase their self-sufficiency and reduce the risk of disruption from supply chain bottlenecks, social unrest, cyber attacks and harsh weather.

Many companies believe “they are stretched too thin and their supply chains are not resilient enough to handle a significant shock to the system,” Smithson said.

To be sure, dealmakers face several headwinds, he said.

“High valuations, deal complexity for high-quality assets and pandemic-fueled supply chain disruption will continue to have knock-on consequences for dealmakers,” Smithson said.

Inflation, tighter regulation of technology and other sectors, and geopolitical tensions, including Sino-U.S. friction, may also discourage dealmaking, WTW said.