Though most global dealmakers expect deal activity to increase over the next 12 months, they also expect inflation, supply chain issues and environmental, social and governance (ESG) risks to be biggest obstacles to getting deals done in 2022. This is according to a new survey from Datasite, a leading SaaS-based technology provider for global mergers and acquisitions (M&A) professionals.
“2021 was all about transformational deals with many organizations turning to technology and combining with other companies to ensure their competitiveness”
Almost half (48%) of the 600 global dealmakers surveyed said they expect deal volume to climb higher in 2022 compared to this year’s record levels, which have been fueled by favorable interest rates and ready access to capital. When it comes to targeting potential transactions, 32% of global dealmakers said organic growth potential will be the most important evaluation consideration, ahead of revenue or cost considerations. Of the M&A opportunities dealmakers expect to see the most in 2022, 22% cited larger acquisitions as the top pick, despite increased antitrust scrutiny and ahead of joint ventures and partnerships (19%) and debt-like investments (16%).
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“2021 was all about transformational deals with many organizations turning to technology and combining with other companies to ensure their competitiveness,” said Rusty Wiley, CEO of Datasite. “No doubt that will continue in the new year, especially as companies continue to future-proof their businesses. There will also be opportunities to invest in growth, which can include divesting non-performing businesses or acquiring new businesses that offer access to new products, services, capabilities or markets. This may apply, especially, to deals in the consumer and industrial sectors, where we are already seeing rising activity in the number of new projects on our platform.”
In fact, when it comes to specific transaction types in 2022, global dealmakers said they expect to see more restructurings (31%), refinancings and debt financings (27%), and joint ventures and partnerships (27%) compared to 2021.
Inflation, Supply Chain and ESG are biggest deal blockers in 2022
Inflation impacted deals in 2021 and is expected to again be one of the biggest deal breakers in 2022. More than 70% of global dealmakers said inflation affected a deal they had worked on in 2021, by changing company operating assumptions (33%), affecting deal valuations (26%), or ultimately causing a deal to fall apart (17%). In 2022, in addition to inflation and other macroeconomic issues such as GDP growth and unemployment, global dealmakers expect ESG risks, supply chain challenges and labor shortages to be the top risks to sink deals. However, the degree of concern varies based on location. In the US, dealmakers are most concerned about ESG risks (20%) and macroeconomic concerns (17%), while UK dealmakers see supply chain constraints (19%) and labor shortages (17%) as the most threatening, and EU dealmakers are most troubled by macroeconomic concerns (21%) and ESG risks (16%).
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Technology central to dealmaking in 2022
“Technology will continue to be vital to dealmakers so that they can best manage their M&A processes, including conducting complex due diligence activities so their deals can reach successful outcomes,” said Wiley. “With deal activity expected to continue at the same rate or higher next year, AI-powered tools can increase their capacity to manage a higher volume of transactions, freeing up dealmakers to focus on higher value tasks.”
Indeed, the top 2021 strategy global dealmakers used most to counterbalance bandwidth constraints was technology (31%), ahead of asking employees to take on more responsibility (25%), moving people across practice areas to fill gaps (24%) and turning away deals (18%). Dealmakers’ reliance on technology and digital tools may also help them to spend more time with family, which they cited as a top priority in 2022.
