Deep Impact: Global M&A plummets in 2H22

After the party, comes the hangover. Rising interest rates, surging inflation and war in Europe have given global dealmakers a thumping headache. Worldwide, mergers and acquisitions totalled USD 3.6trn in 2022, down 38.8% from 2021’s record-smashing USD 5.9trn. Compare 2022 with the pre-pandemic five-year average (2015-19) – before the easy-money policies following Covid’s onset supercharged dealmaking in 2H20 and 2021 – then deal value this year is 9.3% lower.

Activity has plunged in the months since May, as the drumbeat of recession around the world became louder. Between the first and second halves of 2022, deal volume fell 40% to USD 1.364trn in 2H22 from USD 2.256trn in 1H22. The number of deals also shrank 33.5% to 14,369 over the same time frame, the least active second half since 2003.

Going small

Dealmakers are making smaller transactions, with deals in excess of USD 2bn declining at a much faster pace than overall M&A. 

North America’s volume has contracted fastest as major stock indexes plunged into bear territory. The continent’s USD 1.59trn-worth of deals in 2022 is nearly half of 2021’s heady total, and 15% below the pre-pandemic average. North America’s global dominance has slipped too – from a 49% share of global M&A last year to 44% this year.   

Despite an energy crisis brought by Russia’s invasion of Ukraine, Europe’s M&A has contracted less. The USD 1.03trn agreed in 2022 in the Old Continent is 30.7% lower than 2021, and 2.3% less than the pre-pandemic five-year average. The 12,198 transactions agreed in Europe are 13.7% lower than 2021 but 4.5% higher than the pre-pandemic average. 

Shining star

Financial sponsors – sitting on more than USD 1trn in dry powder – bucked the gloom. Buyout and exit volumes may be down in 2022 from last year’s starry heights, but they are historically strong. This year’s buyouts of USD 644bn and exits of USD 539bn are respectively 50% and 43% higher than the average in 2015-19. But a significant weakening in sponsor-led dealmaking happened in the second half, as financing costs soared, institutional loan issuance dried up, and banks largely stopped underwriting deals because of losses on buyouts agreed before markets sank.  

Strong start, weak finish

Seven of the year’s top 10 deals all took place in the first half of 2022. Microsoft’s [NASDAQ:MSFT] USD 75bn purchase of Activision Blizzard [NASDAQ:ATVI], announced in January is still the year’s biggest. Six happened in April and May alone, including VMWare’s [NYSE:VMW] USD 71.6bn sale to Broadcom [NASDAQ:AVGO]; India-based Housing Development Finance’s [BOM:500010] USD 60.8bn deal with HDFC
Bank [NYSE:HDB]; Italy-based Atlantia’s [BIT:ATL] USD 46.4bn sale to Blackstone [NYSE:BX]; and Elon Musk’s USD 41.3bn buyout of Twitter. The only top 10 deals to take place in 2H22 were Haleon’s [LON:HLN] USD 30.9bn demerger from GlaxoSmithKline [LON:GSK] in July, Horizon Therapeutics’ [NASDAQ:HZNP] USD 28.3bn purchase by Amgen [NASDAQ:AMGN] in December, and Albertson’s [NYSE:ACI] USD 24.8bn acquisition by Kroger [NYSE:KR] in October.  

To brighter days…

Going forward, bankers say there is ample private-equity dry powder and cash on corporate balance sheets for dealmaking to rebound in 2023. Many deals have stalled because of a persistent valuation gap, although that is closing. Given weakened valuations, many companies are opting to sell a stake instead of the whole thing.

Potential deals in the US in 2023 could include food additives business Innophos, which is running a sales process, according to Mergermarket. In Europe, UK veterinary group VetPartners and Italian family-owned pharmaceutical company Alfasigma are preparing for 2023 sales, according to Mergermarket. In Asia Pacific, Norway’s Telenor is looking to divest its USD 1bn Pakistan business, while KKR may opt to sell a stake in pub operator Australian Venue Co after considering a full exit.
 
Global Intelligence heat chart: Most M&A opportunities are in tech, industrials and pharma

Note: The intelligence Heat Chart is based on “companies for sale” tracked by Mergermarket in the last six months. Opportunities are captured according to the dominant geography and sector of the potential target company.

The full report is available to download on your right.

How low can it go? Global M&A plunges again in 3Q22 

Mergers and acquisitions took a sharper downturn in the third quarter as the world continued to grapple with soaring inflation and hopes of a soft landing evaporated. 

If 2022’s fourth quarter is anything like its third, then 2022 may struggle to beat pandemic-ravaged 2020’s tally of USD 3.6tn. For the first nine months of 2022, global transactions reached USD 2.97tn – about a third down from the same period during 2021’s record year and roughly level with the comparable period in pre-pandemic 2019. 

Global dealmaking in 3Q22 dropped to USD 722bn – a 54% decline from a year earlier and 38% down sequentially from 2Q22. The 6,916 transactions in 3Q22 were also 32% lower year-on-year and 26% down sequentially. It makes 3Q22 the worst quarter since 2Q20, when the start of the pandemic halted dealmaking. 

The 3Q22 slowdown affected all regions. North America fared worst, with M&A plunging by 63% year-on-year to USD 273bn as summertime hopes of a stock market rebound ebbed when the Federal Reserve doubled down on monetary tightening to tamp stubborn inflation. Europe’s fell by 41% to USD 207bn over the same period as an energy crisis roiled the continent. Asia-Pacific fell by 51% to USD 192bn as China’s zero-Covid policy gummed up supply chains and a real estate crisis threatened its economy.

Gone sour

In a sign of just how much activity has soured, eight of the year’s top 10 deals took place between January and May. Only consumer healthcare company Haleon’s USD 30.9bn spinoff to shareholders in July and Figma’s USD 20bn sale to Adobe [NASDAQ:ADBE] in September took place afterwards. 

Two top 10 deals are already unravelling: Elon Musk will battle Twitter [NYSE:TWTR] in court this month as he fights to unwind a USD 44bn deal to buy the social media company. KKR also pulled its USD 20.5bn all-cash bid for Australia’s Ramsay Health Care in September, five months after first agreeing it. During 1Q-3Q22, 185 deals worth USD 239.3bn were cancelled compared with 428 transactions totaling USD 475bn abandoned in 1Q-3Q21. In the current volatile environment, more deals could collapse.

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Deep Impact: Global M&A plummets in 2H22

After the party, comes the hangover. Rising interest rates, surging inflation and war in Europe have given global dealmakers a thumping headache. Worldwide, mergers and acquisitions totalled USD 3.6trn in 2022, down 38.8% from 2021’s record-smashing USD 5.9trn. Compare 2022 with the pre-pandemic five-year average (2015-19) – before the easy-money policies following Covid’s onset supercharged dealmaking in 2H20 and 2021 – then deal value this year is 9.3% lower.

Activity has plunged in the months since May, as the drumbeat of recession around the world became louder. Between the first and second halves of 2022, deal volume fell 40% to USD 1.364trn in 2H22 from USD 2.256trn in 1H22. The number of deals also shrank 33.5% to 14,369 over the same time frame, the least active second half since 2003.

Going small

Dealmakers are making smaller transactions, with deals in excess of USD 2bn declining at a much faster pace than overall M&A.

North America’s volume has contracted fastest as major stock indexes plunged into bear territory. The continent’s USD 1.59trn-worth of deals in 2022 is nearly half of 2021’s heady total, and 15% below the pre-pandemic average. North America’s global dominance has slipped too – from a 49% share of global M&A last year to 44% this year.

Despite an energy crisis brought by Russia’s invasion of Ukraine, Europe’s M&A has contracted less. The USD 1.03trn agreed in 2022 in the Old Continent is 30.7% lower than 2021, and 2.3% less than the pre-pandemic five-year average. The 12,198 transactions agreed in Europe are 13.7% lower than 2021 but 4.5% higher than the pre-pandemic average.

Shining star

Financial sponsors – sitting on more than USD 1trn in dry powder – bucked the gloom. Buyout and exit volumes may be down in 2022 from last year’s starry heights, but they are historically strong. This year’s buyouts of USD 644bn and exits of USD 539bn are respectively 50% and 43% higher than the average in 2015-19. But a significant weakening in sponsor-led dealmaking happened in the second half, as financing costs soared, institutional loan issuance dried up, and banks largely stopped underwriting deals because of losses on buyouts agreed before markets sank.  

Strong start, weak finish

Seven of the year’s top 10 deals all took place in the first half of 2022. Microsoft’s [NASDAQ:MSFT] USD 75bn purchase of Activision Blizzard [NASDAQ:ATVI], announced in January is still the year’s biggest. Six happened in April and May alone, including VMWare’s [NYSE:VMW] USD 71.6bn sale to Broadcom [NASDAQ:AVGO]; India-based Housing Development Finance’s [BOM:500010] USD 60.8bn deal with HDFC
Bank [NYSE:HDB]; Italy-based Atlantia’s [BIT:ATL] USD 46.4bn sale to Blackstone [NYSE:BX]; and Elon Musk’s USD 41.3bn buyout of Twitter. The only top 10 deals to take place in 2H22 were Haleon’s [LON:HLN] USD 30.9bn demerger from GlaxoSmithKline [LON:GSK] in July, Horizon Therapeutics’ [NASDAQ:HZNP] USD 28.3bn purchase by Amgen [NASDAQ:AMGN] in December, and Albertson’s [NYSE:ACI] USD 24.8bn acquisition by Kroger [NYSE:KR] in October.

To brighter days…

Going forward, bankers say there is ample private-equity dry powder and cash on corporate balance sheets for dealmaking to rebound in 2023. Many deals have stalled because of a persistent valuation gap, although that is closing. Given weakened valuations, many companies are opting to sell a stake instead of the whole thing.

Potential deals in the US in 2023 could include food additives business Innophos, which is running a sales process, according to Mergermarket. In Europe, UK veterinary group VetPartners and Italian family-owned pharmaceutical company Alfasigma are preparing for 2023 sales, according to Mergermarket. In Asia Pacific, Norway’s Telenor is looking to divest its USD 1bn Pakistan business, while KKR may opt to sell a stake in pub operator Australian Venue Co after considering a full exit.

Global Intelligence heat chart: Most M&A opportunities are in tech, industrials and pharma

Note: The intelligence Heat Chart is based on “companies for sale” tracked by Mergermarket in the last six months. Opportunities are captured according to the dominant geography and sector of the potential target company.

The full report is available to download on your right.

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