M&A 2021 Review
M&A activity surpassed $5 trillion for the first time, with the total expected to reach $5.8 trillion by the end of 2021. surpassing the previous high of $4.55 trillion set in 2007. M&A activity increased by 64% over the previous year (2020). In 2021, 62,193 transactions were completed, a 24 percent increase over the previous year.
- High liquidity, cash-rich investors, FDI inflows, and other favorable conditions fueled M&A activity in India. In 2021, approximately 85 deals worth more than $75 million were completed, with 80 percent of these entering the market for the first time.
- In 2021, Indian companies completed deals worth $120 billion, with an average deal size of $105 million. In the previous year, the Indian startup ecosystem contributed 254 deals
- The United States led the way in the world of investment banking, accounting for nearly half of the total value. With $2.5 trillion in transactions taking place in the country.
Outlook for 2022
According to the signs, the M&A market still has enough oomph to keep the record-breaking number of transactions going. Companies all over the world are constantly challenged to unlock value for stakeholders while maintaining their competitive moat. Supply-chain concerns, as well as the rapid pace of digital transformation, will force these companies to continue to focus on inorganic growth.
Having said that, the last two years have seen high valuations, an inflow of liquidity, and VC/PE funds pouring in money, making deal-making extremely complex and competitive. Other potential disruptions, financial market volatility, and macroeconomic factors must also be monitored on a regular basis.
Along with record-breaking numbers and a positive growth outlook, changes in supply-chain dynamics, shifts in competition, and ever-changing economic conditions have made M&A appear daunting. Because of these constraints, acquirers will be forced to work within their capabilities rather than participate in the deal frenzy. However, there are strategies that businesses use to increase their chances of success. Over time, institutions such as McKinsey, Harvard Business School, and others have emphasised the significance of programmatic M&A in today’s world.
A programmatic M&A strategy is one in which a company makes two or more small/midsize deals in a specific sector or theme in a given year. This approach has a number of advantages, ranging from increasing stakeholder value to lowering volatility in uncertain times.
Maximizing Stakeholder Value:
Over the last decade, this approach to maximizing value by focusing on multiple smaller deals in a calendar year has outperformed the contrasting approach of organic, selective, large-scale transactions. There has been a 2% outperformance in the given time frame when compared to the more traditional route. These yields were not sector-specific and were observed by companies adopting it across the market.
Agnostic in the Sector
The superior yields obtained by implementing this strategy were seen throughout the market. Two out of three programmatic M&A firms outperformed their peers.
Supplementing Larger Transactions:
Programmatic M&A does not have to detract from the value created by Organic and Selective transactions. Large-scale transactions are defined as those in which the target owns at least 30% of the acquirer’s market capitalization. Adding a dash of Programmatic M&A boosts the chances of long-term success significantly.
During times of economic downturn and uncertainty, such as Covid-19 and the 2008 Financial Crisis, programmatic acquirers outperformed the rest of the pack. The outperformance of their peers is bolstered by the fact that they did so with less volatility. This kind of performance inspires confidence: only 13% of programmatic acquirers paused M&A activity in 2020, compared to 31% of the rest.
Programmatic acquirers are unanimous in their understanding of the source of their competitive advantage and moat. As a result, they are well-positioned to identify the financial and operational underpinnings that will allow them to capitalize on their strengths.
Programmatic acquirers have established organizational infrastructures and best practices at all stages of the M&A process:
- Define your objectives.
- Create an end-to-end M&A process based on a systematic approach.
- Define and communicate your company’s strengths and deal-closing capabilities.
- Use technology to compare targets, organize and share key data, and move through due diligence in a methodical and efficient manner.
- When sourcing deals, culture should be prioritized.
- Begin planning for integration as soon as possible (while you’re still doing your due diligence).
To ensure a long-term outlook for the M&A market, all parties involved must carefully examine deals through the lens of value maximization. Only by quantifying potential synergies can these be realized. Cost synergies and market synergies are two examples of synergies between two parties. Identifying these value creation opportunities can lead to exponential growth.
The M&A market is expected to expand over the next five years. Businesses are looking for new ways to innovate and remain competitive in their respective industries. They are also looking for ways to increase the value of their company by acquiring new sets of skills and technologies. One of the most popular trends in this space is programmatic M&A. It enables businesses to acquire other businesses without having to spend months on due diligence and other time-consuming processes. Data analytics is another trend that will continue to grow in importance as it assists businesses in making more informed decisions about who to buy, how much to pay, and so on.
Finally, 2022 will bring a plethora of opportunities to fuel growth via inorganic channels. A shift in M&A strategy toward robust value creation and utility identification is on the horizon.