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Q4 2021 - Global M&A to remain strong in 2022 as valuations reach historic highs

Q4 2021 Quarterly Deal Performance Monitor and 2022 M&A predictions

Mergers and Acquisitions
Mergers and Acquisitions

By Jana Mercereau and Duncan Smithson | January 19, 2022

Recording their first positive annual performance for five years, dealmakers expect M&A activity to continue to increase this year and ESG issues to dominate the corporate agenda.

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QDPM Methodology

    • All analysis is conducted from the perspective of the acquirer.
    • Share-price performance within the quarterly study is measured as a percentage change in share price from six months prior to the announcement date to the end of the quarter.
    • All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered.
    • Only completed M&A deals with a value of at least $100 million which meet the study criteria are included in this research.
    • Deal data sourced from Refinitiv.

Global dealmakers achieved their first positive M&A performance for a full year in 2021 since 2016, according to latest research on completed deals from Willis Towers Watson’s Quarterly Deal Performance Monitor (QDPM). Based on share-price performance, companies making M&A deals outperformed the World Index1 by +1.4pp (percentage points) on average.

Jump to our five M&A trends for 2022

Bar graph showing M&A yearly analysis
Figure 1. M&A yearly analysis

The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise.

Run in partnership with the M&A Research Centre at The Bayes Business School (formerly Cass), the data also reveals that global activity breached new highs as completed deals valued over $100 million reached 1047 in 2021. This represents a significant increase on the previous year (674) and is the highest annual volume since our analysis began in 2008.

Deal volume in North America remained consistently strong during 2021, with acquirers closing 614 deals, almost double the 325 deals achieved in the previous 12 months, although they only outperformed their regional index by the narrowest of margins (+0.5pp).

Bar graph showing M&A yearly volumes
Figure 2. M&A yearly volumes
Bar graph showing global M&A deal volume by quarter
Figure 3. Global deal volume by quarter

The M&A boom in 2021 looks set to continue, fuelled by abundant investment capital, strong equity markets and cheap debt.

For the full year, APAC dealmakers recorded their strongest performance since 2016, outperforming their index by +16.8pp, despite closing only fractionally more deals regionally compared to 2020 (196 vs 173), as fewer Chinese acquisitions continued to depress volume levels. European acquirers outperformed their regional index, showing a positive performance of +3.9pp and 199 deals closed in 2021, up a quarter on 155 deals in the prior 12 months. UK acquirers have consistently outperformed the FTSE All-Share index over the last five years, recording a positive performance of +5.7pp for the year.

Bar graph showing share price performance of M&A deals regionally
Figure 4. M&A deals regionally: share price performance

The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise.

The M&A boom in 2021 looks set to continue, fuelled by abundant investment capital, strong equity markets and cheap debt, and companies under pressure to make their businesses greener by hunting for targets with the right climate credentials. M&A data coming out of North America also highlights the impact that historically high asset valuations, pushed up by competition and increasing complexity, can have on deal performance. The question is whether prices being paid now will continue to make sense over time.

Five M&A trends for 2022

M&A activity in 2022 looks poised to match the peaks of 2015, although deals will remain susceptible to increasing challenges. High valuations, deal complexity, competition for high-quality assets and pandemic-fuelled supply chain disruption will continue to have knock-on consequences for dealmakers. Deal speed, preparation and quality due diligence will be essential if dealmakers’ expectations are to be met. Jana Mercereau, Head of Corporate M&A Consulting, Great Britain at Willis Towers Watson shares her top trends for the year ahead.

  1. 01

    ESG goals drive M&A boom

    ESG (environmental, social and governance) priorities are climbing to the top of CEO agendas, with greater emphasis to drive employee engagement in a hybrid world of work and purchasing, rationalising or divesting assets to improve their environmental footprint. Themes such as decarbonisation will drive deals and there will also be opportunities for new ventures stemming from climate risk mitigation innovation.

  2. 02

    Digital transformation accelerates

    Businesses have been focusing on the digital transformation of their operations for a number of years, with the pandemic increasing the speed and scale of change. The so-called Great Resignation, which has forced companies to re-evaluate how to retain and acquire new talent in a scarce labour market, will continue to be a factor with companies under pressure to acquire high-end talent in fields such as cyber security and software engineering. Our M&A data reveals that 293 large and mega deals (those valued at over $1bn) were completed in 2021, the highest number recorded as companies shaped their post-COVID future through transformative acquisitions. This may well be surpassed in 2022 as companies and investors flush with cash continue to look for acquisitions in areas where they need to grow or add capabilities.

  3. 03

    Supply chain-driven M&A

    Many companies will aim to achieve more self-sufficiency in their products and services due to the immense strain exerted on global supply chains by the pandemic, social unrest, cyber attacks and extreme weather events. They will achieve this through either reshoring, nearshoring or M&A by vertically integrating upstream links to improve certainty of delivery.

  4. 04

    M&A cycles changing

    Instead of declining in line with economic downturns, the unprecedented amount and mix of capital for deals from private equity firms and other investors indicates an increased capability and desire to do deals through downturns. The rising trend to build professional in-house corporate development teams, allowing firms to identify and act on opportunities more nimbly themselves, will further enhance acquirers’ capacity to undertake M&A deals even during high volatility.

  5. 05

    Strong M&A in 2022, but with caveats

    Most dealmakers will be aiming this year to match or exceed their 2021 deal total, but they will also be concerned that inflation pressures and ESG issues could have a negative impact on deal performance.

    Besides the ongoing pandemic, supply chain disruptions and talent shortages, government regulation is likely to intensify, with a focus on the technology sector. Companies will also continue to face geopolitical tensions. China looks unlikely to remain the powerhouse of international, cross-border deals, which may serve to stimulate activity in other places such as Japan, India and Southeast Asia. This trend is already evident in our data, which reveals cross border M&A activity during 2021 has remained at a steady level despite depressed deal activity from China.

Footnote

1 The M&A research tracks the number of completed deals over $100m and the share price performance of the acquiring company against the MSCI World Index, which is used as default, unless stated otherwise.

Authors

Head of Human Capital M&A, Great Britain

Senior Director, Mergers and Acquisitions

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