21 February 2022

This is a positive environment for deal-making

Ivan Sedgwick, Investments Director at LGB & Co. Limited, looks at the M&A market in 2021 and expectations for 2022 in the latest issue of Business Leader magazine:

"Global M&A had its biggest year ever, at $5.7trillion vs $3-4 trillion between 2014-2020.

The big drivers were TMT ($1.8tn, double the previous peak) of which tech alone was over $1tn; healthcare (up 67%) plus a resumption of activity in traditional sectors as we got used to Covid. Though they garnered headlines, SPACs were a little over 10% of activity but peaked in Q1 and were almost entirely a US phenomenon, so not the major driver. However private equity was important, with buyouts at a new high of 27% of all M&A activity from 20% in 2020.

Major drivers were of course cheap money, but also high valuations. This might seem counterintuitive but companies’ ability to issue highly rated paper made expensive-looking acquisitions look affordable. And a recovering economy.

Cheap money in itself does not guarantee a continuation of the boom. Liquidity is like air: there’s the same amount whether the wind is blowing or not. If we are faced with uncertainties- whether from increasing energy prices, conflict in Eastern Europe or the South China Sea, or a rise in interest rates, we could certainly see a slowdown of activity. Managements can always delay bidding, even if bankers try to persuade them that their potential targets will be lost forever.

The UK as one of the poorest performing markets of the last few years has of course attracted attention. US companies remain comfortable with the legal system, the regulatory environment, and the language. There is good technology and R&D even if mainstream manufacturing is a shadow of its former self. There are few barriers to entry. So far however the activity has tended to be in larger rather than smaller companies."

Read the article in Business Leader online here (p14).

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