M&A activity in 2021 saw historic activity. Many buyers are seeing opportunity and value acquiring smaller companies. With access to capital and low interest rates, values of companies are at record levels. In a white-hot market, valuation multiples hit an all-time high of 15.4 times enterprise value/EBITDA. Tech assets, in particular, decoupled from the broader M&A market, with multiples at 25 times. Similarly, the healthcare industry saw its asset prices soar, with median multiples at 20 times.
Despite the high prices, new research suggests an optimistic outlook for deal activity in 2022. A survey of more than 280 executives shows a full 89% anticipate their own deal activity will stay the same or increase this year. The environment for deal making remains fundamentally attractive, and a well-balanced mix of market signals suggest the strategic M&A market will continue to be robust.
However, business leaders say that their appetite for M&A could be limited by several factors in 2022, including high valuations, inflation, and a lack of attractive targets left to buy. Another issue for some investors is the possibility of a rise in the cost of capital and potential tax increases.
M&A patterns in 2022 are likely to be affected by a combination of factors, both macroeconomic and microeconomic. The ones executives expect to have the greatest impact on M&A deal activity are: high valuations (61 percent say so); economic variables, such as overall liquidity (56 percent); fierce competition for a limited number of highly valued targets (55 percent); and supply chain factors (52 percent).
More than half of executives will be looking to acquire entire companies to help diversify their commercial portfolios. Almost 60 percent are seeking access to new products, services and technologies, executives say.
If you own a privately held business, you may want to consider starting an exit process to take advantage of excellent sellers market conditions such as high values and low taxes.
