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2021 Global M&A Activity Highest Ever At More Than $5 Trillion

2021 Global M&A Activity Highest Ever At More Than $5 Trillion
As a result of an oversupply of capital and sky-high values, global merger and acquisition (M&A) activity smashed all-time milestones in 2021, effortlessly wiping the high-water mark established nearly 15 years before.
According to Dealogic statistics, the worldwide value of M&A surpassed $5 trillion for the first time ever on Dec. 16, with volumes climbing 63 percent to $5.63 trillion, significantly surpassing the pre-financial-crisis high of $4.42 trillion set in 2007.
"Corporate balance sheets are incredibly healthy, sitting on $2 trillion of cash in the U.S. alone -- and access to capital remains widely-available at historically low costs," said Chris Roop who co-heads North America M&A at JPMorgan.
Technology and healthcare, which generally make up the vast majority of M&a deals, took the lead once more in 2021, fueled in partly by pent-up desire over last year, when the pace of M&A deals dropped to a three-year low because of the worldwide financial consequences from the Covid-19 pandemic.
Finance sponsors swooped on publicly traded firms, while companies scrambled to obtain capital through stock or bond issues. Large corporations took advantage of soaring equity markets to utilise their own stock as acquisition currency, while financial sponsors swooped on publicly traded companies.
Furthermore, despite possible obstacles such as inflationary pressures, strong corporate earnings and an overall positive economic outlook gave CEOs the confidence to pursue major, transformative transactions.
"Strong equity markets are a key driver of M&A. When stock prices are high, that usually corresponds with a positive economic outlook and high CEO confidence," said Tom Miles, co-head of Americas M&A at Morgan Stanley.
According to Dealogic, the total transaction volumes in the United States roughly doubled to $2.61 trillion in 2021. Europe saw a 47 per cent increase in business deals to $1.26 trillion, whereas Asia Pacific saw a 37 per cent increase to $1.27 trillion.
"While China cross-border activity has been modest, corporates from other Asian countries have stepped up to buy global assets. We expect to see this trend continue, especially for deals in Europe and the United States," said Raghav Maliah, Goldman Sachs' (GS.N) global vice chairman of investment banking.
Several of the largest deals of the year were unveiled in the first six months of the year, including AT&T Inc's $43 billion merger with Discovery Inc and Medline Industries Inc's $34 billion leveraged buyout.
The speed of mergers and acquisitions, on the other hand, exhibited no signals of slowing down in the second half.
On Nov. 21, KKR launched a bid attempt for Telecom Italia, Italy's largest telecoms operator, valuing it at around $40 billion, including net debt, in what would be the largest private equity buyout in Europe and the second largest globally if it goes through. find out more
According to Dealogic, the easy availability of funding spurred private equity deals, with volumes more than tripling from previous year to a record $985.2 billion.
"Investors are deploying cash at an unprecedented pace which means that, on a global basis, asset valuations have peaked to historic levels," said Luigi de Vecchi, chairman of Europe, Middle East and Africa banking capital markets advisory at Citigroup (C.N).
"The question is whether the prices being paid now will continue to make sense over time."
Company leaders have been on the lookout for candidates with the correct environmental certifications as they try to make their operations greener and more environment friendly.
"Along with technology and digital transformation, sustainability is here to stay and is a key focus for most boardrooms," said Citi's de Vecchi.
Following a year of lockdowns, Wall Street's top investment banks encouraged their negotiators to see more customers in person in order to obtain attractive merger and acquisition mandates or protect firms from raids by activist investor raids.
"This year we're set to exceed $100 billion in global investment banking fees," said Berthold Fuerst, Deutsche Bank's global co-head of M&A.
"There has been unprecedented demand for almost every single investment banking product," he said.
Bankers are expecting a large bonus round in early 2022 following a tear of record breaking record-breaking year.
Breaking apart large international conglomerates and empires was also a profitable business for financial institutions.
GE, Johnson & Johnson, and Toshiba were among the huge corporations that laid out plans to divide up their core operations and spin off several units in the last six months of the year.
Firms and investors are rushing to negotiate deals prior to future interest rate hikes, and flow of mergers and acquisitions is exhibiting no signs of a slow down.
With the US Federal Reserve hinting that it will raise interest rates next year to tackle growing inflation, borrowing costs are largely anticipated to increase over the coming months. Despite this, bankers predict that dealmaking will continue to be active.
"I don't think upward movement in interest rates alone is going to be the catalyst that sidetracks the M&A market," said Morgan Stanley's Miles.
leading advisors of mergers and acquisitions are worried about the outcome of the the US Federal Trade Commission's (FTC) progressively oppositional position toward merger and acquisition over the last year, with Nvidia's planned $40 billion acquisition of British chip designer Arm being one of the most recent deals it is attempting to block. 
"The FTC and Department of Justice are already taking more time than ever before to evaluate deals, so companies pursuing M&A must be ready to discuss their deals with regulators up front, at any time," said Krishna Veeraraghavan, an M&A partner at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.
He went on to say that corporations will have to wait longer to close transactions - up to a year and a half instead of the typical 6-12 months - and that they should enter a merger "ready to litigate."
Despite the challenges, the year ahead is still full of opportunity, as the market for special purpose acquisition companies (SPACs) has recently reopened in Europe, with fresh listings, following regulatory scrutiny in the United States.
"With private equity and with the dry powder in the SPAC world we expect the momentum to continue well into 2022," said Philipp Beck, head of EMEA M&A at UBS (UBSG.S).

Christopher J. Mitchell

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