Annual Global M&A Report 2022 [PitchBook]

Fund Fellow Founders Annual Global M&A Report 2022 [PitchBook]

The report states that in 2022, global M&A activity remained resilient despite harsh macroeconomic headwinds, but several macroeconomic developments threw markets off course. The US Federal Reserve announced seven interest rate hikes during the year, and the European Central Bank raised its rate to 2%. Global equity markets tumbled during H1 2022 as company valuations were driven down and future cash flows were discounted at higher rates. PE firms struggled against increased borrowing and leverage costs, but buyers took advantage of cheaper prices and continued to deploy capital in a challenged financing environment.

Below you can find key takeaways from the report:

Jinny Choi

In 2022, global M&A activity remained resilient despite harsh macroeconomic headwinds, but several macroeconomic developments threw markets off course. The US Federal Reserve announced seven interest rate hikes during the year, and the European Central Bank raised its rate to 2%.
Global equity markets tumbled during H1 2022 as company valuations were driven down and future cash flows were discounted at higher rates. PE firms struggled against increased borrowing and leverage costs, but buyers took advantage of cheaper prices and continued to deploy capital in a challenged financing environment.

PAGE 6

Well-capitalized strategics continued to chase deals for long-term growth in 2022, including Kroger's planned merger with Albertsons. Several energy deals also made the top M&A deal list.
Cross-border M&A remained robust in 2022, with US-domiciled acquirers seeking out targets overseas. The US-Europe M&A differential was the largest in 16 years, second only to 2019, when Europe attracted a net M&A flow of $129.2 billion.

PAGE 8 (Nicolas Moura)

In 2022, European M&A remained resilient despite the macroeconomic backdrop, with a record 17,900 deals, up 11.7% YoY, but a 6.1% drop in deal value. The biggest deal of the year was the German government's nationalization of Uniper for $33.7 billion.
M&A in Europe was boosted by cross-border deal flow, with one in 10 deals involving a North American acquirer. PE deals accounted for 36.1% of all European M&A deals, an increase of 140 basis points from 2021.

PAGE 9 (Jinny Choi)

North American M&A activity stumbled in 2022, with the value of deals falling 21.6% from the record-setting activity seen in 2021. This was caused by soaring inflation and aggressive interest rate hikes, as well as geopolitical tension and ongoing supply chain issues.
M&A activity was slowed down as interest rates rose, lowering equity valuations and increasing the cost of financing acquisitions. The CPI showed a year-end rate of 6.5%, signaling cooling inflationary pressures for 2023.
Despite intense market volatility, North American M&A deal count and value remained above the three-year pre-pandemic average (2017 to 2019), demonstrating that deal activity is correcting to a more sustainable pace in line with historic levels.

PAGE 10 (Tim Clarke)

In 2022, the B2B sector gained 1.5% in its share of deal count, more than any other sector. Its high proportion of boot-strapped and founder-owned businesses attracted corporate and PE buyers alike.

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In Q4 2022, 11 out of 20 deals were buyouts by PE funds, and eight involved a public company that either got taken private in its entirety or sold a piece of itself to a PE buyer. Aerospace & defense stayed hot, with two notable deals occurring.

PAGE 12 (Kyle Walters)

In 2022, B2C M&A activity remained above historical trends, but deal value saw a big drop from the record-setting 2021. The median deal size lowered to $20.6 million, though it was still the second-highest median on record.

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In 2022, corporations carved out noncore assets to increase efficiency and cut costs, and divested Seattle's Best Coffee to Nestlé to focus on driving sustained growth in the coffee category.

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M&A insurers ended 2022 in a quieter place than we began, but I see a surprising number of good reasons for some confidence about the coming year.

Our core clients will continue to transact

The stronger PE firms will continue to transact in 2023, albeit selectively and with discretion.

Due diligence will improve

Some weaker and less well-capitalized PE firms will see enforced pauses on their activity, which will reduce overall deal volumes and reduce competitive tension. This will also allow transaction teams to focus properly on due diligence.

Reduced multiples will shrink claim sizes

As financing sources shrink and interest rates rise, PE firms will struggle to borrow at previous levels, which will result in a drop in offer levels and a smaller exposure for insurers.

Buyers and sellers are now on the same page

The global economy is in a downturn, which has a positive side for insurers as well. If you buy a dog that you already know has fleas and perhaps a touch of mange, you buy it more cheaply.

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As governments look to raise money through higher taxes, we see new opportunities for tax specialist colleagues. Companies will look to reorganize themselves for tax purposes, and tax insurance products will become more attractive.
2023 will be the year of recession-proof infrastructure assets, such as road networks, and renewable energy infrastructure.

PAGE 16 (Kyle Walters)

While energy M&A activity declined in 2022, deal value skyrocketed to $407.7 billion, as companies looked to capitalize on higher prices and higher demand amid the energy crisis caused by the war in Ukraine.

PAGE 17

In 2022, oil & gas M&A activity remained strong as corporations and countries looked to address energy needs. Several of the largest deals were a result of the war in Ukraine.
Despite taking a back seat to oil & gas, clean energy continued to accelerate its deal activity in 2022, with several multi-billion-dollar deals taking place in the renewables space.

PAGE 18 (Tim Clarke)

In 2022, 2,745 financial services deals were announced or completed, representing a combined value of $459.7 billion. The sector's share of total deal value ticked up to 11.0%, recovering from a five-year low of 9.7% in 2021.

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In Q4, HSBC sold its Canadian business to Royal Bank of Canada for $10.0 billion, and New York Community Bancorp acquired Michigan-based Flagstar Bank for $2.6 billion.
Aegon sold its Dutch pension and life insurance operations to ASR Nederland for $4.9 billion, and Swiss InsurEvolution sold its private placement life insurance unit to Octium Group for $2.6 billion.

PAGE 20 (Aaron DeGagne)

Healthcare deal value ticked up in Q4 but remained below its 2021 heyday. Big Tech companies are cutting back, and there have been a pause in major deal flow in medtech, but the largest companies have the balance sheets to make moves.

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The biotech buying spree was a bright spot despite deal flow trending down in 2022, with several major acquisitions occurring. With valuations down across the sector, we could see greater activity in 2023.
Thermo Fisher completed its $2.8 billion acquisition of UK diagnostics company The Binding Site, and other life science firms may have interest in expanding their portfolios of tests for cancer screening and treatment selection.

PAGE 22 (Jinny Choi)

IT dealmaking was resilient despite intense market volatility, with 6,750 deals at a cumulative value of $902.8 billion completed in 2022, the sector's second-best year in both deal count and value. In the second half of 2022, tech M&A is expected to slow down as buyers and sellers struggle with adjusting valuations, corporate restructuring in major tech companies, and broad inflationary pressures. PE firms will pick up deals from the expanding universe of heavily discounted public companies.

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The US Federal Trade Commission and Department of Justice have filed multiple lawsuits against major tech companies since 2020, and President Biden signed a bill to raise filing fees on large M&A deals to strengthen antitrust enforcement.

PAGE 24 (Tim Clarke)

After a brief reprieve, private equity activity in the materials & resources sector has fallen to its lowest dollar volumes since 2013 as investors steer clear of more cyclical businesses ahead of a likely recession.

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Mining & minerals is cleaning up its act: BHP acquired OZ Minerals for $6.2 billion, and LS MnM was fully merged into LS Holdings of Japan for $664.1 million.
Containers & packaging is also active, with Sealed Air acquiring Liquibox and Verallia acquiring Allied Glass Containers. Both companies will expand in the beverage sector and e-commerce-ready solutions.

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