M&A falls 21% during first half 2022 amid global turmoil: Refinitiv

Dive Brief:

Mergers and acquisitions worldwide slumped 21% during the first half of 2022 compared with the same period last year, Refinitiv said, as deal-makers stepped back to assess disruptions including mounting inflation, Russia’s invasion of Ukraine, supply chain bottlenecks and financial market turmoil.
While geopolitical tensions prompted a 17% decline in cross-border M&A, the value of private equity-backed transactions rose 1% during the period to $552.8 billion and “mega-deals” exceeding $10 billion increased 11% to $608.6 billion, Refinitiv said. Transactions targeting U.S. companies fell 28% to $957.8 billion compared with the first six months of last year.
“At a time when change fatigue is at an all-time high, with the pandemic in its third year, clear and consistent communication to employees and the market will prove more critical than ever to preventing greater disruption and confusion, and ensuring deals get over the finish line, create value and drive long-term growth,” according to Jana Mercereau, head of corporate M&A consulting, Great Britain, at Willis Towers Watson.

Dive Insight:

The current slump in M&A belies a vast reservoir of capital available to CFOs eager to pursue deals. Companies have set aside record cash reserves totaling $3.5 trillion, Deloitte said, citing Bloomberg data. Also, private equity firms hold more than $1 trillion in “dry powder.”

Companies and investors who shy from transactions may miss a rare opportunity, Deloitte said. “Deal-makers would be wise to heed the lessons of the 2008 financial crisis, when a compulsive cash accumulation culture emerged in the aftermath, and it inhibited the evolution of potential future-shaping investments and deals.”

The stock price of companies that invested excess cash in future growth on average rose at nearly twice the rate of the average share price among “their cash-hoarding counterparts,” Deloitte said.

Inflation flaring at a 40-year high — and Federal Reserve efforts to fight it — may not alone inhibit M&A, Deloitte said. High price pressures and the systematic withdrawal of monetary stimulus did not halt growth in deal-making during two five-year periods ending in 1999 and 2007.

Also, “M&A markets tend to recover quickly from crisis conditions once uncertainty subsides as deal-makers rapidly adapt to the new environments and prefer to create their own momentum,” Deloitte said.

CFOs pursuing deals during the second half of 2022 will need to move forward against strong headwinds.

Record deal-making last year prompted regulatory scrutiny, Deloitte said. “Companies will need to demonstrate the long-term benefits of their deals to regulators and broader stakeholders, against a backdrop of protectionist instincts that are clouding M&A.”

The average time to close a deal has already increased, WTW said. During the first half of this year, 60% of transactions took more than 70 days from announcement to closing compared with 54% during the same period last year.

“Geopolitical uncertainty, rising interest rates and supply chain disruptions create a volatile mix that will make deals more complex, take longer and require a new focus from buyers on how to improve the odds of success,” Mercereau said in an email response to questions.