Malcolm Lloyd is Deals Leader, PwC Global and EMEA; Colin Wittmer is Deals Leader, PwC US; and John D. Potter is Deals Sector Leader, PwC US. Deal professionals across PwC’s network of firms contributed to this post. This post is part of a series that covers an overview of global trends impacting the deals market.
Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? (discussed on the Forum here) by John C. Coates, IV, Darius Palia, and Ge Wu; Allocating Risk Through Contract: Evidence from M&A and Policy Implications (discussed on the Forum here) by John C. Coates, IV; The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo and Guhan Subramanian; and Deals in the Time of Pandemic (discussed on the Forum here) by Guhan Subramanian and Caley Petrucci.
What a difference six months makes. At the start of 2022, dealmakers were riding high from the best year on record for global M&A, with more than 60,000 publicly disclosed deals breaking US$5tn in value for the first time. We predicted that this year wasn’t likely to top 2021 in the face of growing headwinds—but the market expected M&A to continue to prosper. Fast-forward to mid-year. Not only have the headwinds grown stronger, but new ones have emerged, including rapidly accelerating inflation and interest rates, lower stock prices, and an energy crisis deepened by the Russia–Ukraine conflict.
Despite these challenges, we believe that M&A will play an increasingly important role in corporate strategies—and there might even be better opportunities for investors to generate healthy returns in today’s environment, as valuations come down. Indeed, dealmakers have good reasons to reset their strategic priorities and make bold moves to get deals done in the areas of their M&A pipeline that matter most. Specifically, it is imperative to plan or prepare to win over stakeholders early, understand how inflation can be a game-changer, and prioritise increasingly urgent workforce strategies in acquisitions and integration (as we detail below).
Looking to the second half of the year, dealmakers are facing arguably one of—if not the—most uncertain and complex environments in recent memory. Deal values declined by 20% compared to the first half of 2021, and are likely to decrease further as the economic fallout is priced into global markets. Deal volumes have fared better, falling back to strong pre-pandemic levels, when M&A activity averaged 50,000 deals per year from 2017–19. But of particular note, the number of megadeals (deals with a value in excess of US$5bn) decreased by almost 40% between the second half of 2021 and the first half of 2022, as executives grew more cautious and regulatory scrutiny increased in several key markets.
