Global mergers and acquisitions remained robust last year amid adverse market conditions that included slowing global growth, skittish capital markets, difficulties in secure financing and heightened regulatory scrutiny over large deals.
Corporations and buyout firms took advantage of the declining valuations to snatch up attractive assets. The strong dollar also gave US strategic buyers and PE funds more purchasing power to hunt for deal targets overseas.
Large deals valued at more than $1 billion declined in value and numbers compared with previous year, as increasing regulatory pressures and lingering economic headwinds sapped buyers’ appetite for these deals.
PitchBook’s latest Global M&A Report analyzes how M&A dealmaking has fared over the last year. Here are several takeaways from the report.
Global M&A activity had another banner year in 2022, in spite of the challenging environment.
Dealmakers had to maneuver adverse events including rising interest rates, inflationary pressures, political tensions and capital market jitters.
Still, companies worldwide last year struck 44,377 merger deals totaling $4.7 trillion, marking the second-best year for M&A, according to PitchBook data. While the total deal value was 13.7% lower than the record set in the prior year, it topped historic levels.
One factor driving the robust momentum was the broad decline in valuations, which attracted investors who were able to strike deals at favorable prices. PitchBook data shows deal multiples—a metric that compares a target’s enterprise value to its EBITDA—declined to 8.8 times at the median last year, from 11.1 times a year earlier.
Median deal multiples came down across industries, with the energy, software and healthcare industries having experienced noticeable declines from the prior year, the data shows.
The number of large deals dropped last year, but small and mid-sized transactions made up for the slide.
Dealmakers completed 389 deals north of $1 billion last year, representing 37.5% of the total deal value. That compares to 646 transactions and 40.4% of the total value in 2021.
“The C-suite’s sentiment has been more cautious, especially compared to the past two years,” said Jinny Choi, a PitchBook PE analyst and a co-author of the report. “With an inflationary market and the potential risk of recession, companies tend to focus on protecting balance sheets and shedding non-core assets instead of buying up assets.”
“However, we still saw well-capitalized firms turn towards acquisitions to drive growth, and there were a lot more acquisitions done at the smaller end of the deal spectrum as these firms pursue bolt-on acquisitions or take up divestitures and carve-outs that came out from other troubled companies,” she said.
In addition to macroeconomic headwinds, increased regulatory scrutiny also put some pressure on large transactions. A recent case in point: The Federal Trade Commission in December sued to block Microsoft‘s takeover of video game developer Activision Blizzard. The regulator alleges the $68.7 billion transaction—the largest ever in the video gaming industry and in Microsoft’s history—would stifle competition in the gaming industry and harm consumers.
Kroger‘s $24.6 billion deal for Albertsons also drew regulatory scrutiny, and the companies have considered selling more than $1 billion in assets to seal the merger, Reuters reported. The merger, if approved, would create a supermarket titan with $200 billion in annual revenues.
US dealmakers took advantage of the strengthening dollar last year to snatch up cheaper assets in the UK and Europe, which dealt with weakening currencies, dampened valuations and a cooling investor appetite for risk assets.
The value of cross-border deals that involved North American buyers acquiring European companies totaled $315.3 billion last year, representing 10.12% of overall M&A deals closing in Europe, PitchBook data shows.
By contrast, European bidders struck $214.5 billion worth of transactions targeting North American companies during the same period, making up 6.18% of total North American merger deals.
The roughly $100 billion net flow of capital into Europe is the largest since 2019, according to the report.
Even as the UK and European stock markets have rebounded from their troughs of a few months ago, valuations of these companies remained more attractive than US equities, according to Frédérique Carrier, head of investment strategy at RBC Wealth Management.
UK and European stocks were trading on 10x and 14x 2023 earnings per share, respectively, much below those in the US, Carrier wrote in a Feb. 9 commentary.
US PE firms have swiftly jumped on the trend of acquiring European assets. Seven of the 10 largest deals in 2022 were buyouts that involved US-based PE firms, topped by the $28.6 billion take-private of Italian infrastructure group Atlantia from Blackstone and Italy’s Benetton family. In July, Brookfield and DigitalBridge teamed up to buy a 51% stake in Deutsche Funkturm’s tower business. A consortium led by Global Infrastructure Partners acquired a majority stake in German rail logistics company VTG AG.
Related read: 2022 Annual Global M&A Report
Featured image by Nomad_Soul/Shutterstock
Learn about our editorial standards.
