M&A Sector Reaches Record Numbers — Here’s How Osterus Enables Investors to Cash in on this Trend
“We’ve seen deals lead the way to economic recovery — looking forward, I expect M&A will continue to play a pivotal role for companies navigating technological disruption and increasing pressure from stakeholders to unlock value in their companies and portfolios.” - Malcolm Lloyd, Global Deals Leader, Partner, PwC Spain.
Despite the recent macroeconomic headwinds and the disruptions induced by the pandemic, the enthusiasm for economic growth continues to increase. Especially among CEOs. According to the annual global CEO survey conducted by PwC, 77% of CEOs expect global economic growth to go up in 2022.
The research also showed that over 50% of CEOs expect the revenue growth of their own companies to increase within the next year, with most of these CEOs belonging to tech-based and private equity companies — which are the two sectors with the highest M&A volumes and values reported in 2021.
All-Time High M&A Activity During 2021
Global Merger and Acquisition deals reached record numbers during the previous year. The reports show that over 62,000 announced deals occurred globally, accounting for a never-before-seen rise of 24% when compared to 2020.
This jump is even higher for the value of publicly disclosed deals (US$5.1tn, with 130 deals with values higher than US$5bn), which is 57% more than the 2020 value. The Americas is the region with the highest bump in deal values, accounting for half of the overall deal value and around 60% of global megadeals.
The dynamic M&A sector broke records across all three major markets. Europe, the Middle East and Africa (EMEA), for example, saw the biggest bump in deal volumes — an increase of 34%; while the Americas and Asia-Pacific followed with 22% and 17% respectively.
The following graph shows deal volumes and values during the 2019–2021 timeframe:
Main Drivers for the Growth in M&A Deals
There are multiple reasons for this record-reaching M&A activity in 2021. The demand for new technologies is at an all-time high, especially when it comes to digital assets, sustainable tech and data-driven analytics, while many also stated that regulatory or tariffs and trade changes were the main reason to pursue M&A deals, including securing the supply chain.
The deals are also becoming heavier and more complex, while there’s also the demand-based potential from the somewhat frozen year 2020 that was put to good use in 2021.
Now, let’s see what the main M&A drivers are.
Driver 1: Increased Use of Data Analytics for Decision-Making
Data analytics technology and strategies have become an integral part of the PE ecosystem of operations. Data-driven insights are used in the following processes:
- screening potential investments
- monitoring portfolio performance
- value creation
- successful exit managing
- risk assessment
- workforce analysis
The evident rise in the M&A market is being induced by the insights made available through data analytics platforms capable of improving the decision-making process. Here’s how you can do the same.
Use Osterus DeepML for Smarter M&A Deals
Leveraging the rise of M&A market is possible via smart, data-driven insights. Using the Osterus platform is one of the ways to do so as it enables businesses, venture capitalists and PE firms to have advanced, next-generation software for analyzing workforce data and gaining actionable Investment and M&A insights.
With Osterus, businesses can:
- Compare portfolio companies with the competition.
- Learn about their workforce structure and experience, who/where they hire from, etc.
- Understand which companies are most lucrative to acquire, merge, or invest in.
Osterus data points and reports allow businesses to analyze the human capital of target companies and truly assess the value and opportunity of investing, acquiring or merging. When an investor has deep insights into a company’s workforce structure, they can better understand all the data points around education, skills, work experience, the industry and the market they belong to, and — in so doing — detect general workforce patterns that speak volumes about a potential M&A deal.
Osterus is currently working on metrics to help evaluate human capital components and we make sure professionals receive all the intelligence they need to assess the workforce. Visit the Osterus website for more information and feel free to schedule a demo with Osterus experts to experience first-hand what this platform can do.
Driver 2: M&A Deals are Getting Heavier and More Complex
The deals within the US$1bn–US$5bn are typically those that drive the numbers up for PE companies. However, certain M&As that took place in 2021 hint that we are likely to see more complex deals within the PE environment in the near future.
One example of a larger deal involves a partnership-based fund (managed by Blackstone, Carlyle and Hellman & Friedman) acquiring Medline Industries, Inc. for US$30bn. Another is the acquisition of McAfee worth US$14bn made by a group of investors including Crosspoint Capital, Advent and Permira, Canada Pension Plan Investment Board, etc.
Driver 3: The ESG Score (Environmental, Social and Governance)
The ESG score is becoming a growing and inevitable component in M&A. Investors use this factor in their decision-making process to recognize risks, as well as harness opportunities for value creation.
When we take a look at the Global Private Equity Responsible Investment Survey conducted by PwC in 2021, we can see that the ESG factored into over 50% of the deals that either got turned down or refused to enter an agreement with a general partner.
This increasingly important factor within the PE landscape emphasizes a trend where more and more M&A deals will revolve around the transition to greener energy sources. M&A is also likely to flourish in sectors that are adopting new business models, so we have the biggest oil companies pivoting towards investing in hydrogen and other renewable energy sources.
Driver 4: Supply Chain
Another factor that is driving the M&A landscape forward is the use of merger and acquisition deals to create resilience and secure business strategies against the supply chain issues, one of the biggest headwinds at the moment.
The support of supply chains has been on the particular rise lately and is of high interest among M&A professionals. It is expected that more vertical-integration deals will occur in 2022, and they are likely to go both ways — downward and upward. Downward to have more control over product distribution. Upward to make sure that critical raw materials and components are always available.
What Lays Ahead in 2022 for the M&A Market
Although the numbers from 2021 are not likely to be topped in 2022, the way in which the M&A market is moving and with the global economic optimism remaining quite high among CEOs, it is clear that we’re in for another great year. The M&A pipeline is a solid one, capital isn’t lacking, while the demand for new technologies is constantly on the rise.
Valuations are likely to follow suit, mainly due to tight competition between PEs, corporates, and special purpose acquisition companies (SPACs). PEs seem to be enjoying the biggest piece of the pie, with just shy of 40% of 2021 M&A deals involving a PE fund. Aside from PE firms making more and more deals, these M&As are also growing in value.
As for the corporates, they are likely to shift their strategies toward new and disruptive digital business models to drive innovation and make their M&A decision-making smarter and more secure.
Stay on top of Your M&A Game With OSTERUS
We believe in patterns.
Observing multiple companies across industries allows us to detect regularities in order to understand irregularities. Osterus helps investment professionals with the assessment of a company’s workforce, uncovering and mitigating potential risks in an investment decision. Accurate data for Due Diligence around Human Capital is what makes or breaks an investment.
Our goal is to inform investors and M&A professionals about threats and alarming signals — like those that could have been found in Theranos and other companies that have a bold vision but lack the talent to execute.
With workforce insights, we provide our clients with solutions to analyze companies, their employees and workforce structures, and use our data to detect prolific Merger and Acquisition opportunities.
Let us help you lay the foundation for structuring future success.
If you’re interested in using Osterus for your company, feel free to schedule a demo and we’ll explain how this can become your reality. We have a saying here at Osterus, “Let the data speak!”