Global M&A markets fall to pre-pandemic levels | White & Case srl

While global deals in the first quarter were down from a 2021 blockbuster, there are signs deal activity could pick up later in the year

After a banner year for transactions, 2022 has had a relatively slow start. A total of 4,947 deals worth US$984 billion changed hands in the first quarter, down 25% in value from the first quarter of 2021, while the number of transactions fell by 27%.

M&A activity in value Q1 2019 – Q1 2022
Target location: Global Place of the bidder: Global Sectors: All sectors

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Although they did not reach the highs of 2021, where the value of deals exceeded US$1 trillion every quarter for the first time ever, closing deals in the first quarter can be seen as a normalization of l ‘activity.more in line with pre-pandemic activity levels after an unprecedented market spike in 2021.

The decline in activity extended to the high end of the market; There was 31 transactions valued at over US$5 billion each announced in the first quarter. This is a significant reduction from the 48 transactions announced in this price range in the first quarter of 2021.

The gaming sector offers exceptional offers

After a record-breaking 2021, global deals in technology, media and telecommunications (TMT) have had a new start to the year. With a total of 1,533 deals worth $359.1 billion announced, TMTs remained the most active sector for dealmaking— in value and in volume.

Signaling its dominance, the sector has attracted five of the top ten deals of the year so far. That includes the most valuable deal of the first quarter: Microsoft’s $75.1 billion takeover of video game maker Activision Blizzard.

In particular, the software and media sub-sectors saw year-on-year increases in total deal value. Value of software mergers and acquisitions increased 34% from the first quarter of 2021 to US$254.5 billion in the first three months of this year, while media deal value more than doubled from US$12.7 billion to US$35.1 billion.

The increase in the value of software contracts could be attributed in part to the Activision deal, the largest ever for Microsoft. The transaction is part of Microsoft’s goal to develop immersive virtual worlds, or “metaverse platforms,” ​​which Big Tech companies widely see as part of the next evolution of the Internet.

Closer to home

Although the COVID-19 pandemic has had a negative impact on the gaming industry due to console production delays (particularly due to the global shortage of semiconductors), the industry has weathered the pandemic better. than many others. Like other home entertainment, gaming has been boosted by lockdown orders.

The deal with Activision is set to upend the balance of power in the global gaming industry. A bargaining frenzy is predicted as tech companies strive to dominate this fast-changing space.

Trading in the gaming industry is certainly heating up. Just a week before Microsoft’s announcement, US video game holding company Take-Two Interactive agreed to acquire mobile game specialist Zynga in a $12.2 billion deal. The companies said the combination would help them better compete with traditional game companies such as Activision Blizzard and EA.

The biggest media contract of the quarter demonstrates the disruptive effect of the pandemic. Nielsen’s proposed privatization by a group of US$15.3 billion private equity investors comes after a multi-year campaign by activist investor Elliott Management as the company faced pressure on its business. TV audience due to the growth of streaming. Elliot led the consortium to take the company private, along with its private equity arm Evergreen Coast and Canadian asset management firm Brookfield.

Nielsen struggled to keep up with consumers’ shift to streaming for several years, but it got worse during the pandemic as streaming platforms grew at an even faster rate than before.

The U.S. banking sector piques the interest of Canadians

With $117 billion in announced transactions, financial services was the second most active sector in terms of transaction value. Consolidation within the North American banking sector has been a key driver of this trend, as evidenced by TD Bank in Canada’s purchase of US-based First Horizon, announced in February.

Major US banks currently have to comply with strict regulations that prevent further consolidation in the sector. This opened the door for Canadian bidders north of the border to take advantage of the fragmented industry.

The US$13.4 billion deal will see the Canadian bank, which has been an active acquirer in the US banking market since 2004, become the sixth largest lender in the United States. The purchase will bring its US assets to $614 billion, with a network of 1,560 branches and a particularly strong presence in the South, including the large Texas market.

Real estate demand fueled by the pandemic

Amid a somewhat quieter quarter compared to the previous one, real estate was the only top 5 sector to see an increase in deal value year over year. A total of 105 transactions valued at 81.1 billion US dollars were recorded in the sector in the first quarter— an increase in value of 110%.

The jump was largely due to Blackstone Group’s $23.8 billion recapitalization of its European logistics business, Mileway, the second-largest deal so far this year across all industries. The US PE giant’s move signals a bet on rising demand for warehousing space, with the recent pandemic-fueled e-commerce boom driving demand soaring. Widespread disruption to supply chains has also increased the need for warehouse space as companies seek to keep inventory in reserve.

Outlook

Looking ahead to 2022, negotiators have a few reasons to be cautious. The Federal Reserve recently raised its benchmark rate and indicated that it plans to raise rates several times this year in order to fight inflation.

Supply chain disruptions, a major cause of inflation, have become widespread during the pandemic, proving an ongoing headache for businesses. Geopolitical uncertainty exacerbates these problems, but even before the current conflict, economic growth was expected to slow – the World Bank predicted in January that global GDP would grow by 4.9%, against 5.5% it estimated for 2021 .

Considering all of these factors, it is perhaps easy to see why traders might become more cautious over the coming months. Yet the fundamental drivers of the negotiation remain, with recent developments demonstrating the importance of digitalization and the energy transition. Events of the past two years have also led to an overhaul of global supply chains, with more localized ecosystems becoming the new normal. Moreover, these headwinds are driving down valuation multiples, which have steadily increased in recent years.

Although deals will be tougher in 2022, dealmakers should seize the opportunity to find the best ways to use mergers and acquisitions to put themselves in a better position to endure the systemic changes underway – in climate, technology and the world.

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