While the number of SME sales and acquisitions surged last year, the slowdown observed in Q1 2022 could herald a lasting downturn due to the war in Ukraine. These are the findings of a study conducted by In Extenso and published exclusively by Les Echos on Monday April 4. Here's a closer look at the company mergers that are slowing down this year.
The downturn in sales and acquisitions caused by the conflict in Ukraine
M&A deals concluded since January represent a volume of $1010 billion, or almost 907 billion euros, compared with $1,430 billion in Q1 2021, according to Dealogic data. This 29% drop can be explained by geopolitical tensions, which have prompted major companies to postpone their external growth projects.
"Rising energy costs, dislocated supply chains and rising inflation are key factors influencing both corporate and private equity clients atthe moment," Dwayne Lysaght, co-head of EMEA M&A at JPMorgan Chase & Co, reports to Reuters.
Record volumes difficult to reproduce
Activity in Q1 2022 is compared with last year's record volumes, which are difficult to reproduce in the current context. More specifically, the year 2021 was marked by a 41% increase in transactions. The study "Régions & Transmission: panorama des cessions et acquisitions de PME" revealed by Les Echos reports 1,172 M&A transactions recorded, compared with 829 in 2020.
This year, despite macroeconomic concerns and heightened volatility, new business did not come to a standstill. Indeed, among the quarter's major transactions was the acquisition of "Call of Duty" maker Activision Blizzard by Microsoft for $75 billion. Another announcement was that the Orange Group and Spanish operator Masmovil had entered into exclusive negotiations with a view to combining their activities in Spain. The operation is expected to take the form of a 50-50 joint venture co-controlled by the two players, with a total enterprise value of 19.6 billion euros.
A trend very close to that of 2016-2019
Even if volumes have fallen in 2022, the trend remains very close to that recorded in 2016-2019. Private equity firms have not given up on big deals, as shown by the increase in the number of transactions from 12 to 13 in one year. Transactions led by private equity funds remained at high levels, with a total value of almost $204 billion.
According to Jim Langston, co-head of M&A at Cleary Gottlieb Steen & Hamilton,"private equity M&A will continue to account for a larger share of overall M&A activity as available ammunition remains at high levels".
Accordingly, industry specialists expect business volumes to rise once geopolitical tensions subside. However, individual transaction amounts could decline.