M&A Market 2022
It seems every major consulting firm, M&A specialist, bank, industry survey, or financial institution and publication is in consensus that 2022 will be an extremely strong year for the M&A market in 2022, with bullish forecasts for both deal volumes and company valuations.
There is an expected uptick in would-be sellers and continued interest from prospective buyers. Among PE firms, the majority say deal flow will increase from 2021’s record levels. In terms of valuations, half of the middle-market companies expect stable valuations, while a third or more anticipate higher prices. There seems to be an increase in confidence that deals will get done.
At Chapman Associates, we believe challenges will continue into 2022, but we also have a lot of optimism. Here are some thoughts and observations on 2022:
- Expected selling activity is rebounding, with the percentage of companies open to a sale increasing after COVID-related decreases. The most common reason to sell is for strategic growth opportunities, but the second most common is the lack of a succession plan along with pandemic weariness.
- Most companies expect much of their growth will come from acquisitions. Growth remains the top driver for both buyers coming to market.
- Interest in M&A is the result of more compelling opportunities to pursue and a desire for expansion. Disinterest in M&A is due to the challenge of finding partners and the uncertainty of the political and economic environment.
- There is continued interest in using an advisor for M&A transactions among sellers. Sellers seek out an advisor is to find the best potential offers. Buyers see value in the way advisors speed up the process and help assess an opportunity.
- Most buyers prefer to work with a seller who uses an advisor because an advisor helps keep negotiations professional.
- Global M&A volumes involving private targets reached $3.2 trillion last year, or 54% of total 2021 deal value, up from 45% in 2020 and 36% in 2019. Increasingly, private companies have become equally as attractive as public companies.
COVID and other economic factors such as labor market challenges and commodity prices are headwinds to operations, yet the consensus is a stable, positive performance for the year ahead. COVID and its effects make life much harder for some sectors through depressed revenue and steep labor/commodity challenges affecting many others. The pandemic drives sales higher for some industries. However, even within sectors, this environment is creating winners and losers.
Amid these dynamics, low-interest rates and strong economic growth continue to support high valuations. The pandemic is the new normal, and companies, PE firms, advisors have all adjusted to working under these conditions. Strong performers should be prepared for a seller’s market with a competitive offer process and high valuations.
