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Companies bought and sold each other at a record pace in 2021, with 1,047 deals — each valued at more than $100 million — inked globally last year, according to a new study.
And researchers say they don’t expect the mergers-and-acquisitions activity to slow down anytime soon.
Last year’s M&A boom is the largest on record since Willis Towers Watson, the consultancy that completed the study, started keeping records in 2008, just before the financial crisis. The firm tallied only the deals whose value was $100 million or more.
For comparison, in 2020, there were only 674 M&A deals done globally that had individual values of $100 million or more.
“The M&A boom … looks set to continue — fueled by abundant investment capital, strong equity markets and cheap debt, Duncan Smithson, senior director at advisory firm Willis Towers Watson, told The Post.
Another engine under the expected 2022 rise in deals: companies looking to make their businesses “greener” by hunting for targets “with the right climate credentials,” Smithson said. That way, they can cash in on the so-called environmental, social and governance investing trend, also known as ESG, where companies are screened to meet certain metrics.
Still, once companies buy other companies, it’s not necessarily all that good for business: The firms completing M&A deals last year outperformed competitors by just 1.4 percentage points when considering their stock prices compared to companies that didn’t engage in M&A activity, according to the Willis Towers study, which was done in conjunction with the Bayes Business School in London.
Even so, that share performance was the best since 2016 by companies that had engaged in M&A activity: In fact, it’s the first time since then that M&A-involved companies logged a positive share-price performance, the study said.
And while Smithson is optimistic the boom will continue into 2022, he cautioned dealmakers will be worried about factors like rising inflation.
“Deal speed, preparation and quality due diligence will be essential if deal makers’ expectations are to be met,” he said.
And given given the ultra-high asset valuations in this market, the research suggested the value of these deals could plummet in the coming years. “The question is whether prices being paid now will continue to make sense over time,” Smithson warned.
Despite these negative forces, researchers believe the need for companies to expand their ESG footprints and gain control of their supply chains will outweigh other concerns — giving fuel to the desire to bolt on acquisitions, at least for now.
“Themes such as decarbonization will drive deals, with additional opportunities for new ventures stemming from climate risk mitigation innovation,” Smithson notes. Additionally, “many companies will aim to achieve more self-sufficiency in their products and services due to the immense strain exerted on global supply chains.”
Another factor: companies looking to build out talent may find it easier to acquire another company than hire people.
“The so-called Great Resignation, which has forced companies to re-evaluate how to retain and acquire new talent in a scarce labor market, will continue to be a factor with companies under pressure to acquire high-end talent in fields such as cyber security and software engineering.” Smithson noted.
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