Despite significant geopolitical and financial challenges, global mergers and acquisitions (M&A) activity in the first half of 2022 proved resilient, according to EY’s analysis of relevant data. With 2,274 agreements with a total value of 2.02 trillion. dollars, M&E in the first half of 2022 may have declined compared to the corresponding period in 2021 (down 27% in value and 18% in number of deals), however activity is up compared to average of the last M&E cycle (increase of 35% and 13% respectively).
According to EY’s analysis, the nature of cross-border deals is changing, reflecting today’s geopolitical tensions on the world stage. While levels of cross-border trade in the first half have declined (24% in 2022 compared to an average of 30% in 2015-19), the share of cross-border trade between closely connected countries has increased (51% in 2022 compared to an average 42% in the period 2015-19). The analysis finds that Chinese investment in the US fell from US$27 billion at its peak in the first half of 2016 to US$1.9 billion, while North American investment in Europe rose from US$60 billion to US$149 billion dollars during the same period.
India’s dynamic presence and technology sector
After the US ($900 billion) and China ($175 billion), which traditionally top the list of most active M&A markets, India started the year strongly with the combined value of outbound, inbound and of its domestic deals to reach $128 billion, registering a 215% increase compared to the average of the last trading cycle (2015-19). Along with a boom in domestic M&A ($107 billion versus an average of $21.5 billion in 2015-19), the first half of 2022 also saw an increase in asset acquisitions, according to EY’s analysis. of foreign-owned assets from Indian-owned companies ($6.2 billion vs. $2.3 billion in 2015-19).
Looking at performance by sector, technology once again dominated global M&E in the first half of 2022. While the value of M&E ($627 billion) was down 20% from 2021’s record levels ($789 billion) , still accounts for nearly a third (31%) of global R&D activity. Deals focused on technology targets are now at twice the level of the previous cycle (a 95% increase over the 2015-19 average of $322 billion). In contrast, EY’s analysis finds that the Health Sciences industry continues to underperform, despite the recent health crisis. The sector has recorded $111 billion in deals so far in 2022 (down 58% year-on-year and 48% from the 2015-19 average). The consumer goods sector, which has traditionally been an active M&A market, also saw a 27% decline in activity compared to the first half of 2021, to $91 billion.
Private equity will continue to be the driving force behind M&E, with particular caution for further shocks
Despite widespread uncertainty, a fragile global economy and increased regulatory interventions, M&E momentum remains, driven by particularly strong private capital flows. Although conditions in the capital markets have deteriorated sharply in the first half of 2022, private equity (PE) firms still have large amounts of cash to draw on in the second half of the year.
Global M&E activity has proven remarkably resilient in the face of recent major geopolitical challenges. However, it is not certain that it will be able to withstand further shocks, such as, for example, new lockdowns, increased geopolitical tensions or a strong recession.
Commenting on the report’s findings, Mr. Tasos Iosifidis, Partner and Head of Corporate Strategy and Transactions at EY Greece, said: “Given geopolitical tensions and economic uncertainty, the decline in global M&E activity in the first half of the year , was largely expected after the strong performance of 2021. Unlike during the pandemic, business leaders today are still looking for deals that will boost their organizations’ growth prospects.The outlook for industries such as technology and health sciences remain positive. However, the recovery in M&E activity could be adversely affected by a possible deep recession, a significant increase in borrowing costs or a further escalation of geopolitical tensions.”
Source: Capital
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