Early 2022 M&A activity has slowed somewhat from a robust 2021, but volume and deal values are still high by historical standards, and opportunities remain. Those are the findings of the latest Litera PitchBook report on global M&A trends.
In addition to analyzing the worldwide M&A market, this report focused on three key sectors as the world economy moves past the pandemic: Software, Fintech, and Telemedicine.
M&A slowing somewhat, but deal volumes and deal value still historically high
Coming off a record 2021, global M&A activity slowed in Q1 2022. After five straight quarters of at least 3,000 deals, activity declined to 2,566 transactions, but that's still higher than the typical preCOVID-19 quarter. The same is true for deal value. $428.8 billion worth of deals were completed in Q1, much less than the $550.8 billion recorded in Q4 2021 but more in line with the $390.0 billion from Q4 2019.
The report identifies two ways market conditions affect the nature of deals and deal volume. First, "cash is king" – almost 99% of M&A value stemmed from all-cash transactions, as stock market worries drove a decline in stock-based purchases.
Second, the report cites a "Zoom economy" as a driver for more cross-border deals. As an entire industry transferred its operations to Zoom and other remote work tools, the ability of buyers to identify and execute deals outside their usual geographic territory only grew. $212.5 billion in cross-border deals were completed in the first quarter of 2022, clearly not a slowdown from the $700 billion pace for all of 2021.
The report analyzes other aspects of the market transitioning from 2021 to 2022, including a slight decline in deal size since 2021. It also identifies sectors, such as Information Technology and Business Products and Services, where the pandemic drove changes to the way products and services are delivered, with a corresponding shift in investments.
Spotlight on Software, Fintech, and Telemedicine
Three sub-sectors whose fortunes were impacted by the pandemic were analyzed separately to show the extent to which they fared differently from the rest of the market. The key findings:
- Software. 2021 was a big year, as investors sought recurring revenues and sticky applications. Many software companies are acquiring smaller companies to add capabilities to meet consumer needs without the R&D expense of developing themselves. Deal volume slowed from 2021's pace, from over 1,500 deals last year to 315 in the first quarter of 2022. First-quarter deal values were $55.5 billion compared to 2021's $235.9 billion.
- Fintech. Activity in this sector has been irregular over the past decade. Still, the pandemic revealed its value as phenomena such as e-commerce, contactless payments, and other applications took off as face-to-face transactions declined. VC exit data has been robust, as 2021 ended with $367.1 billion in VC-backed fintech exits.
- Telemedicine. The use of remote tools for health care services surged during the pandemic. 84% of the growth in telemedicine M&A value has occurred since 2018.
A Law Firm Perspective on the M&A data
A Q&A with Holger Hofmeister, partner at Skadden Arps, Slate, Meagher & Flom LLP, rounds out the report. Hofmeister still sees many opportunities in the market despite troublesome economic and geopolitical developments in the news headlines. Hofmeister expects deal volume to be down in 2022 compared with last year. Still, some of the driving forces will remain, including investor activism, ESG-driven pressure, pressure on Special Purpose Acquisition Companies (SPACs) to execute deals by their end-of-year deadline, and ongoing corporate carveouts. He expects software companies to continue to command high valuations due to the importance of software solutions across the global economy.
The full report, "Trends in Global M&A Activity: Spotlight on Fintech, Software, and Telemedicine," can be downloaded on our website.
Posted in Transaction Management