M&A Outlook for 2022

2021 was a historic year for mergers and acquisitions. According to a Reuters article, “Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007.” 

This wave of deal-making activity, along with elevated valuations and soaring levels of inflation, is starting to make some wary about the market’s outlook for the remainder of 2022.

Supply chain issues are a major contributing factor to inflation and will likely be a significant theme among business owners and dealmakers this year. Any supply chain issues could negatively affect the valuations of certain companies.

Quality companies should focus on retaining their value by ensuring a robust supply chain and focusing on best practices like introducing effective technology, cultivating healthy supplier relationships, and more.

Additionally, business owners can use an M&A strategy to scale supply chains, expand business operations, and dramatically improve cash flow. In turn, current supply chain issues are expected to drive M&A activity in 2022, not quell it.

Another driving factor in activity this year is private equity deal activity. According to Pitchbook data, “GPs closed 8,624 deals for a combined $1.2 trillion, over 50% above the previous annual record for deal value.” 

Even with the Federal Reserve announcing interest rate hikes in 2022, the cost of capital is still relatively cheap and will have minimal to no impact upon M&A activity in 2022. 

The biggest challenge this year will likely be the scarce resource of quality deal opportunities worthy of institutional capital; thus, we should continue to see robust valuations for quality companies.

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