Press release

16 Aug 2022 Singapore, SG

M&A activity remains resilient in 2022, but further shocks could derail outlook

Despite major geopolitical and financial headwinds, global M&A activity in H1 2022 has been resilient, according to analysis of M&A data by EY.

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Sophia Mah

Media Relations Lead (Assurance, Tax, Strategy and Transactions, Growth Markets), Ernst & Young Solutions LLP

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  • Global mergers and acquisitions (M&A) down by 27% compared to H1 2021, but up 35% compared to average of the previous cycle (2015-19)
  • Shift to M&A “friend-shoring” sees increase in deals among friendly countries
  • Technology sector dominates with nearly a third of total activity

Despite major geopolitical and financial headwinds, global M&A activity in H1 2022 has been resilient, according to analysis of M&A data by EY. With 2,274 deals of a total value of US$2.02t, M&A in H1 2022 may have seen a drop compared to this time last year (down 27% by value and 18% by volume), but activity is up compared to the average of the last M&A cycle (up 35% and 13% respectively).

According to analysis by EY, the nature of cross-border deals is changing to reflect geopolitical tensions on the world stage. While cross-border transactions levels in H1 have decreased (24% in 2022 vs. an average of 30% over 2015-19), the share of cross-border deals among closely affiliated countries has increased (51% in 2022 compared to an average of 42% over 2015-19). The analysis finds that investment from China into the US has fallen from US$27b at the highpoint in H1 2016 to US$1.9b, while North American investment into Europe have increased from US$60b to US$149b over the same period.

Andrea Guerzoni, EY Global Vice Chair – Strategy and Transactions, says:

“Coming off the SPAC-induced highs of the first half of 2021, M&A activity was always going to go through a correction. But what we see is that unlike when COVID-19 hit and deal activity came to a standstill, CEOs are still trying to look through the fog and are pursuing transactions that will help position their organizations for future growth. On the global stage, while there is still a strong appetite for cross-border deals, CEOs are more selective in who they do deals with, preferring to ‘friend-shore’ their operations and pursue transactions within friendly pockets rather than applying a truly global approach.”

India and the Technology sector reign supreme

Following the US (US$900b) and China (US$175b), which traditionally top the table of most active M&A markets, India has had an extremely active start to the year with the combined value of its outbound, inbound and domestic deals jumping to US$128b and increase of 215% compared to the average of the last deal cycle (2015-19). According to EY analysis, as well as a burst of domestic M&A (US$107b vs. an average of US$21.5b over 2015-19), H1 2022 also saw an increase of Indian-owned companies buying foreign-owned assets (US$6.2b vs. US$2.3b over the average of the last deal cycle (2015-19)).

Across Asia, there has been a slowdown in M&A activity in H1 2022, with 534 deals worth around US$84b, compared with 758 deals worth US$97b in H1 2021.

Kah-Loon Mah, CEO at Ernst & Young Corporate Finance Pte. Ltd., says:

“The slowdown in M&A activity in Southeast Asia is likely due to the impact from the rising interest rates, global inflation and supply chain disruptions, geopolitical headwinds, surging oil prices and the shortage of skills and manpower in certain sectors. That said, I do not think that M&A activities are being curtailed or are being put on hold at present. Instead, companies are becoming more discerning; in fact, many are still exploring investment opportunities, but with greater care.”

Looking at sector performance, once again Technology drove global M&A in H1 2022. While the US$627b of M&A activity was down 20% from the record 2021 levels (US$789b), it still accounted for nearly a third (31%) of global M&A activity. Deals focused on technology targets are now at double the level of the previous cycle (up 95% against the 2015-19 average of US$322b). Conversely, the EY analysis finds that the Life Sciences sector continues to underperform, despite the recent health crisis. The sector has recorded US$111b in deals so far in 2022 (down 58% year-on-year and 48% vs. the 2015-19 average). The Consumer sector that has traditionally been an active M&A market has also seen a 27% decline in activity compared to H1 2021, down to US$91b.

Guerzoni says: “Analysts have long claimed that India represents the next big market for M&A; it appears their predictions are finally fulfilled as the market capitalizes on the slowdown seen in China.

“The centrality of technology in today’s M&A market cannot be understated. The accelerating demand for cloud-based services, IT security and enterprise software, which was a prominent driver of M&A in 2021, is showing no sign of slowing. There are strong underlying reasons to expect the Life Sciences and Consumer sectors to see an acceleration of activity in the coming months. Consumer businesses are directly exposed to the key issues in the wider economy, particularly inflation, and Life Sciences companies still have significant available funds at hand to deploy. Coupled with the rapid decline in biotech valuations from their early 2021 peak, these factors are likely to drive an uptick in dealmaking in the sector.”

In Asia, the Technology sector is also facing strong interest from investors, capturing 31% of the H1 2022 deal volume in the region.

Mah says: “Good businesses will always command an attractive price, if the intrinsic value that resides within the business, e.g., the possession of a unique technology or an expanded reach in distribution, is understood by the buyer. While the cost of capital is increasing, it is still available for deployment into good investments. At this time, more effort needs to be spent on finding those gems and making sure that the intrinsic factors supporting the price are well understood.”

Private capital set to drive activity, but beware of further shocks

Despite the widespread uncertainty, a fragile global economy and increased regulatory intervention, M&A is continuing apace, with a particularly strong flow of private capital driving activity. Even though capital market conditions have tightened sharply through the first half of 2022, private equity (PE) firms still have large amounts of cash that will need to be deployed in the latter half of the year.

Luke Pais, EY Asia-Pacific Private Equity Leader, notes that Technology continues to dominate the PE deal space in Asia-Pacific. Other sectors of interest include Business services as well as consumer-oriented segments, such as Health care, Education and those with broader consumer themes.

Pais says: “While corporates have become more cautious and the IPO market is slow currently, we still see private capital having a lot of liquidity to deploy. As such, I believe that private capital will be taking a larger share of the transactions market in the coming quarters. The private capital offering in the region is also becoming more sophisticated, with capital pools focusing on the different needs of businesses, such as sector-specific growth and buyout solutions, credit solutions, as well as longer-term capital solutions. Going forward, we can also expect to see a lot more secondary deals and continuation funds as private capital takes their portfolio through multiple stages of growth.”

Guerzoni concludes: “A trend that I expect to become a mainstay in the coming months is the use of private capital in both the equity and debt portions of transactions. Driven by both the vast amount of private capital available and rising interest rates, I expect this trend will continue making the role of private markets even more fundamental to the global economy. A barrier to this flow of deals will be if conditions deteriorate to the extent that debt financing dries up or becomes prohibitively expensive.

“While global M&A activity has proved remarkably resilient in the face of major geopolitical headwinds, it is uncertain whether it could sustain further shocks, whether that is further lockdowns, heightened geopolitical tensions or a recession.”


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