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Deals 2022 midyear outlook

On July 28th, we discussed 2022 deal activity thus far and revisited key deal drivers and emerging trends.
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Volatility is opening up new opportunities for dealmakers

After a record year in 2021, the M&A market that started 2022 strong has ebbed from its torrid pace as economic and geopolitical uncertainty flowed. Headlines tend to focus on that drop-off, but the bigger picture shows an active market. Just like a car that slows from 100 mph to 60 mph is still moving fast, so was the first half of 2022. The 2021 deal volume was not a sustainable annual average, and that context is important. Focus not on volume being up or down, but how to get the right deals done well to drive strategic growth and capital returns. Buyers are still trying to close and integrate existing deals such that the capacity of their legal and outside advisors remains pressed.

Going forward, the established pattern of M&A activity tends to grow during economic expansions, should continue once near-term uncertainty lifts. And economic contraction – either through inflationary and borrowing rate pressure, real wage challenges, consumer spending variability or other factors – will influence transactions but not stifle them. There’s still an abundance of capital in the system for both corporate and private equity (PE) to fund deals. That capital has more opportunities for M&A investment as valuations moderate with market volatility. And as that volatility inhibits IPO volume, alternative sources of capital or transactions may be more likely, including PE suitors. The increasing need for speed in business transformation provides another reason for dealmaking optimism. Some of the same forces creating market uncertainty – the lingering pandemic and geopolitical turmoil – also are driving dealmaking imperatives. Whether a company needs to transform its capabilities, supply chains or go-to-market approach, the market is impatient and one of the fastest ways to accelerate transformation is through M&A.

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The paths to deal success­

In an active M&A environment, value isn’t defined by the price of a transaction, but what you can unlock through a carefully considered value creation strategy. From navigating uncertainty to returning to capital discipline and increasing resilience, companies can and should take aggressive action to improve their odds for deal success.

Bottom line

There’s uncertainty in the market right now, but that creates opportunities in addition to challenges. To put themselves in a better position to create value, dealmakers should:

  • Review portfolios to assess which businesses are core and which ones no longer fit. Non-core assets are good candidates for divestitures, which can generate capital that can be re-deployed into other businesses – such as investing into a transaction that creates value by transforming a core function through new technology or ESG capabilities. Such a divestiture also will focus management’s attention on the strategic parts of the business instead of trying to improve performance in a unit that isn’t vital to long-term success.
  • Implement a robust ESG reporting regime, which can allow comparability with potential acquisition targets or to showcase the value creation opportunities of any divestitures.
  • Update valuations on existing or target businesses based on recent market developments. Acquirers that have been prudent about not overpaying in the past couple of years will likely have opportunities to make deals from a more advantageous position.
  • Factor the rising cost of capital into dealmaking. Thanks to inflation and higher interest rates, there is now less margin for error with strategic decisions and dealmakers should act accordingly. 

Contact us

Colin Wittmer

Colin Wittmer

Deals Leader, PwC US

John D. Potter

John D. Potter

Deals Sector Leader, PwC US

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