BY Fraser Tennant
Global M&A deal activity is expected to increase in the second half of 2022 despite challenging market conditions, according to a new Datasite survey.
In its ‘2H 2022 M&A Outlook’ survey, Datasite reveals that 68 percent of the more than 540 global dealmakers surveyed said they expect global deal volume to rise in the second half of 2022, with 41 percent expecting to see the biggest increase in transformational acquisitions or mergers, followed by debt financing at 37 percent and secondary buyouts at 34 percent.
Additionally, 78 percent of dealmakers are pricing at least a 5 to 7 percent increase in inflation, if not higher, into their financial valuation models for the rest of the year. When asked how inflation is expected to impact M&A deal flow, 46 percent of dealmakers said they expect a greater component of deals to be financed via equity, with an additional 34 percent predicting more straight cash deals.
Drilling down, the Datasite survey states that uncertain valuations, inflation and the Russia-Ukraine war are affecting other aspects of dealmaking, including deal size and the timing of completion. Dealmakers said the war, as well as inflation and the cost of capital, are factors likely to prevent a deal from closing before the end of 2022.
Qualitative feedback from dealmakers also points to uncertainty around valuations as another factor having a significant impact on M&A overall, including pausing larger acquisitions and merger processes, especially among corporate and private equity dealmakers.
“Despite geopolitical uncertainties and overall market volatility, global deal activity itself is still strong,” said Rusty Wiley, chief executive of Datasite. “However, when it comes to valuations, dealmakers will likely adjust multiples downward so the net result may be lower valuations overall in the second half of the year.”
And while valuations are lowering, deal times are lengthening. “The median length of time for a new deal, or asset sale or merger, has increased by 5 percent year-over-year so far this year, while deal preparation time is also rising, up 31 percent, for the same time frame,” added Mr Wiley. “This means many dealmakers are ‘ready to go’ but have not launched their projects just yet.”
Report: 2H 2022 M&A Outlook