Merger & Acquisition activity has dropped off significantly in recent months as global economic turmoil has shaken companies’ appetites for dealmaking. According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of each publicly announced deal over $25 million in value, M&A deal volume plummeted 35% in April 2022, compared to April 2021.
Because U.S. M&A activity accounts for a majority of worldwide volume – the U.S. accounted for 60% of global activity in 2020 – this decline in U.S. activity has weighed on global figures. According to Goldman Sachs, global deal volume has declined 20% year over year in April. The number of deals announced actually rose by 32% but the large multi-billion dollar deals of 2021 have been largely replaced by multi-million dollar ones.
This decline has shocked experts. KPMG predicted in 2021 that deal making and valuations would continue to rise in 2022, proclaiming “2021 was a blowout year for M&A – 2022 could be even bigger.”
Likewise, according to Deloitte’s 2022 Future of M&A Trends Survey, which polled 1,300 executives at corporations and private equity investors during the 3rd quarter of 2021, 92% predicted that deal volume would stay the same or even increase over the next 12 months. The executives predicted, “We are not in a “post”-COVID world yet, and the world is coming to terms with the fact that this new reality has impacted much of how business is conducted and has created challenges to which dealmakers have learned to adapt,” adding “M&A has always been a useful tool to help companies grow, reach, and achieve beyond their present-day organic means. The more challenging the environment becomes, the more vital M&A will be.”
As the Federal Reserve raises rates to fight inflation, which has soared to levels not seen in four decades, it dampens M&A activity by increasing borrowing costs and slowing earnings growth. In essence, this is a double drag on M&A: it is not just more expensive to borrow funds to purchase a company, but the expected earnings growth from that company has declined. Companies are reluctant to wade into such an uncertain economy.
According to Richard Ramsden, an analyst at Goldman Sachs, “We see the current [deal] slowdown as a consequence of elevated uncertainty about the economic path.” Analysts continue to express optimism for strong deal flow in the technology sector because they are less dependent upon robust economic growth.