• Worldwide M&A activity pushed past one trillion dollars for the seventh consecutive quarter during Q1 2022, however, volume and value are both down by one fifth (Source: Refinitiv).
  • The remainder of 2022 will inevitably continue to be impacted by the macro environment, inflationary pressure, rising interest rates, ongoing supply chain issues and regulatory scrutiny.
  • Despite a number of challenges, pipelines look robust and the outlook for M&A remains positive.

2021 proved to be an unprecedented year of PE activity which reached $5 trillion for the first time ever. The U.S accounted for nearly half of this activity (Source: Refinitiv). In Q1 2022, worldwide M&A activity reached one trillion dollars, however, large and mid-market deals (valued between $1b and $5b) suffered a 40% decline. Do these pre-pandemic levels indicate a normalization or a downturn due to the current environment? Much remains to be seen, but market volatility, geopolitical tensions, uncertainty around the pandemic and increased regulatory scrutiny in the U.S. have introduced a level of complexity in the M&A business environment.

2022 deal slowdown: Course correction or reason for concern?

2021’s blockbuster year was fueled by low interest rates, strong fundraising and liquid cash reserves made possible due to the pandemic. The AT&T and Discovery Inc. $43 billion merger was just one noteworthy deal among many.

And while the last two years have seen unprecedented activity levels in M&A, 2022 global deal making recently fell to pre-pandemic levels (29%), with North America M&A down 28% (Source: Dealogic). According to the Financial Times, the value of cancelled deals also picked up in the first quarter of 2022 to $215b, the highest level since 2018.

“The small size of transactions in Q1 2022 is a departure from the high percentage of mega transactions we have seen during the pandemic.” (Kaufman Hall)

While a number of market factors including geopolitical tensions, rising inflation, supply chain issues and increasing energy prices will likely impact M&A transactions, a rise in borrowing costs will directly affect private equity deals.