AN improved business climate, significant government stimulus and cheap finance helped to create a record year for mergers and acquisitions (M&A) in 2021, with global activity reaching an all-time high.
According to data from financial markets platform Dealogic, global M&A activity totalled US$5.6 trillion last year, a 63 per cent increase on 2020’s figure and considerably higher than the previous record of US$4.4 trillion, set in 2007.
Financial market data provider Refinitiv came to a similar conclusion in its assessment of 2021, calculating US$5.9 trillion worth of M&A, equivalent to growth of 64 per cent on 2020.
The US led the way with US$2.6 trillion in deals, an increase of 82 per cent, followed by Europe, up 46 per cent to US$1.4 trillion, and the Asia-Pacific region, which rose by 48 per cent to US$1.3 trillion.
In terms of sectors, tech maintained its position as the largest source of M&A, with tie-ups increasing by 71 per cent to US$1.15 trillion, one-fifth of total global transaction value.
After being cautious throughout much of 2020, private equity firms played a key role in transactions last year, accounting for a new record of US$1.2 trillion in deals, a 111 per cent increase.
Meanwhile, the rapid development of special purpose acquisition companies (SPACs) – shell corporations listed on a stock exchange with the sole purpose of acquiring a private company – also had an impact on the market, with SPAC listings tripling last year to make up 10 per cent of the overall M&A market.
Alongside this, central banks’ interest rate cuts combined with government stimulus programmes to bolster growth and provide access to liquidity and debt for deals.
M&A in emerging markets
While high-income markets in North America and Europe drove global M&A growth in 2021, there were significant developments in a number of emerging markets.
Latin America recorded a 113 per cent increase in the value of completed M&A, with US$95.7 billion, driven by significant activity in Brazil and Mexico.
There were similar gains in the MENA region, where the push towards diversification and liberalisation is helping to drive tie-ups and other business deals.
According to Refinitiv, M&A in the region reached US$109 billion last year, a 57 per cent increase on 2020. It was also the first year in which there were more than 1,000 deals.
The largest M&A deal in the region was a US$15.5 billion lease-and-leaseback deal between Saudi Aramco and a consortium led by US investment firm BlackRock, related to the former’s gas pipeline network.
This came after Saudi Aramco had, earlier in the year, sold a 49 per cent stake in its oil pipelines to another US-based consortium, in a deal worth US$12.4 billion.
Elsewhere in the region, Saudi Arabia’s National Commercial Bank merged with Samba Financial Group in April. That the same month Kuwaiti supply chain company Agility and Danish transport company DSV signed a US$4 billion deal that will see DSV acquire Agility’s Global Integrated Logistics business.
Outlook for 2022
Although a specific set of circumstances helped drive M&A performance in 2021, the trend is expected to continue this year.
Despite an anticipated increase in interest rates amid rising inflation, global consultancy KPMG has forecast activity will remain strong throughout 2022.
In particular, ESG principles – an increasingly prominent element of many boardroom agendas – may generate a lot of deal activity going forwards.
Indeed, while acknowledging the challenges to M&A growth, KPMG expects activity to remain strong for some time, considering the volume of new pitches towards the end of 2021, which will only come to fruition in the first and second quarters of 2022.