M&A deal activity stronger than ever

Despite a pandemic that swept through the globe causing border closures, supply disruptions and a backlog in shipping lanes, the M&A market was largely unaffected. In-fact, according to a report published by law firm Corrs Chambers Westgarth, there was a 35% increase in the number of public market deals done in 2021 compared to 2020. The average deal value also increased significantly, by more than 70%.

So what’s going on?

The Corrs report says much of the increase in deal volumes has come on the back of opportunistic market conditions, pent-up demand, high confidence levels at the board table, cashed-up corporates and companies feeling an urgency to shift their focus to become more climate-friendly. The report highlights four predictions for 2022:

1. Hot market = stiff competition, high premiums and defence preparations
2. Frenzied activity levels show no signs of abating
3. Cash to continue its reign
4. Regulators will continue to take centre stage

With the pandemic largely behind us, takeover bidders are less concerned about further pandemic outbreaks and related deal risks. Society has returned to normal, which means a more normal M&A deal flow should be expected this financial year.

Current takeovers – cash takeovers totalled $17.6bn.

Potential takeover targets

From Square’s $39 billion matchmaking with Afterpay to form the newly listed Block (ASX:SQ2), to the Sydney Airports (ASX:SYD) takeover by IFM Investors & Global Infrastructure Partners, interest in the takeover space has skyrocketed, giving investors plenty of dealmaking opportunities to keep them busy throughout the year. Sure, interest rates are on the rise, but that shouldn’t hinder M&A activity, which remains strong.  According to an article in the Australian Financial Review, bankers are betting on deals this year to be in the infrastructure, healthcare, energy transition and technology spaces, particularly with wealth platforms.  

According to Reuters, global M&A activity in the last quarter of 2021 surpassed all previous records. With a large pipeline of M&A deals still to come, analysts are predicting this activity to continue through the rest of the year.

In similar fashion to how Praemium taking over Powerwrap set the scene for a flurry of activity in the wealth management platform space, expect non-core and demerged assets to continue to attract attention by cashed-up overseas firms.

All in all, the flood of activity we have seen so far in 2021 will not be petering-out any time soon.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.