Experts predict climate for global M&A activity will remain strong

US investment bank Morgan Stanley has said 2021 was a record year for global mergers and acquisitions (M&A), with the total value of deals worth more than £3.7 trillion.

AT&T’s £31.81 billion deal to merge its media businesses with Discovery was among the biggest transactions of last year.

Others included the £25.15bn leveraged buyout of Medline Industries and Canadian Pacific Railway’s £22.93bn takeover of Kansas City Southern.

In addition, there were the break-ups of US corporate behemoths General Electric and Johnson & Johnson.

Last year is reported to have eclipsed prior records and marked a remarkable rebound from 2020. Corporates have pursued transformative mergers and acquisitions (M&A) to accelerate expansion.

Sitting on a record £2.15tn of available capital, private equity sponsors are said to have been transacting at an unprecedented pace.

High equity valuations, particularly in the US, and low interest rates contributed to the record M&A figures.

According to Rob Kindler, global head of M&A at Morgan Stanley, the environment remains very good for M&A in 2022.

He said: “While it may not be another record year, all the key elements that made the 2021 M&A market so strong are largely in place.”

The investment bank said corporates exhibited a growing appetite for transformative M&A last year. Corporate activity was broad across sectors, with companies using M&A to add scale and new capabilities, as well as to access new markets.

Morgan Stanley said corporates would this year need to focus on resolving the challenges of supplychain disruptions, labour shortages, Covid-19 and cost inflation.

Corporates will continue using M&A to accelerate the execution of their strategic priorities, the investment bank said.

One such strategic priority highlighted by Covid is the increased omnipresence of technology in e-commerce and logistics, content delivery and consumer interface, business infrastructure and other areas.

Tom Miles, co-head of Americas M&A, Morgan Stanley, said: “Corporates across all sectors and especially in the industrial and consumer industries will accelerate their digital transformations through M&A in order to enable faster growth.”

Deal-making may prove less robust in sectors still recovering from the pandemic, including travel, leisure and aerospace.

Brian Healy, also cohead of Americas M&A, at Morgan Stanley, said: “Once these industries have a clear visibility to the other side of Covid, M&A should bounce back aggressively, though that may be closer to 2023.”

With 2021’s favourable capital markets and global growth environment, some companies chose to announce separation and asset divestitures to bring greater strategic clarity to the core businesses.

This is a trend expected to continue in 2022 as management teams maintain a disciplined approach to shareholder value creation.

As sustainable investing interest grows, an uptick in M&A related to environmental, social and governance (ESG) strategies could emerge.

Mr Miles said: “A manifestation of that could be in the energy and natural resources sectors, where an increased ESG focus by the broader investor community could lead to asset-portfolio rebalancing to improve a company’s environmental footprint.”

The rapid US economic recovery contributed to record-breaking transaction activity in the area last year.

As global economies continue to improve and the effects of Covid subside, regions outside the US could also experience heightened M&A activity, even from strong 2021 levels.

Colm Donlon, head of Europe, Middle East and Africa M&A, Morgan Stanley, said: “In Europe, the Middle East and Africa, continued GDP growth and conducive capital markets should support another strong M&A year.”

Special purpose acquisition company (SPAC) mergers had a banner year in 2021, accounting for about 20% of US M&A volume.

Kristin ZimmermanSorio, head of SPAC M&A, Morgan Stanley said: “As it stands, there is still about $160 billion (£118.38bn) of capital across more than 550 SPACs waiting to be deployed within a limited timeframe.”

Low interest rates contributed to the record M&A figures

RECORD M&A FIGURES: Canadian Pacific Railway’s £22.93bn takeover of Kansas City Southern was among the biggest transactions of last year.