(Finance) – After a 2021 record for M&A, expectations at the start of the year were that strong corporate balance sheets and shifting capital allocation priorities would support a healthy merger and acquisition environment. In the first quarter of 2022 the macro scenario has been completely turned upside down, mainly due to the war and the combination of high inflation and rate hikes. Nonetheless, according to Goldman Sachs the levels of M&A observed in recent months have nevertheless been interesting.
“A confluence of rising yields and slowing growth has created a less favorable financing environment, well illustrated by the year-over-year declines in overall volumes of new issues – reads a new report from the investment bank on the subject – That said. , volumes of mergers and acquisitions have held up well so fardespite the higher financing costs, a sharp decline in CEO confidence and high macroeconomic uncertainty “.
The share of mergers and acquisitions “sponsor-driven“, that is, those where a private equity company typically intervenes, has represented 42% of volumes since the beginning of the year, similar to 2021, but well above the levels recorded for at least 25 years,” a phenomenon that we attribute to the record levels of accumulated liquidity and the need for strategic buyers to cope with a worsening outlook, “says Goldman Sachs
The M&A activity of type “leveraged buy-out“(LBO), or acquisitions through debt, has seen a strong recovery since the beginning of the year, on track to match 2021 levels.
The resilience of M&A deals in the face of high macro risks “suggests executives remain focused on one of the pandemic’s many key lessons: the importance of strengthening and diversifying business mixes to withstand major macroeconomic shocks, “according to the research.
In addition, it highlights the willingness of companies to sacrifice the fundamentals to bolster short-term business resilience, even as continued margin pressures push for greater leverage in the looming recession. The propensity for mergers and acquisitions is present in all sectors, although the technology still represent the largest share with 31%, the highest share since at least 2010.
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