A strong outlook
These broad macro factors, says Khush, are likely to continue to colour activity in 2022, but there are also more micro-environmental factors that are presenting a strong outlook for M&A activity – and inbound activity in particular – in 2022. “The desire for market primacy or market dominance remains strong,” he explains. “To achieve that, corporates aren’t waiting to grow organically, they’re going out and doing deals to secure technology or market share. That land grab is the equivalent of 21st century empire-building and it’s happening through corporates.”
Partly, that drive is being made possible by businesses sitting on lots of cash. Reports show that in the UK, for instance, cash and deposits held by private sector non-financial businesses increased by £221bn between September 2019 and 2021. Meanwhile, the latest PwC CEO survey shows that 21% of US CEOs consider the UK as one of the three countries most important for their growth over the next 12 months2.
Private equity houses are also sitting on capital. “Some would say we’re at the high watermark of capital raised by private equity,” says Khush. “That money is normally raised with a shelf-life, so there’s a massive pent-up need to spend the money.”
He points to the US as one of the most prolific corridors for inbound M&A. “One of the hallmarks of the US is the Special Purpose Acquisition Company or SPAC market, a vehicle specifically to make acquisitions that we’ve not really seen anywhere else, although there are suggestions that European markets, particularly in Scandinavia, might try to create something similar. And that’s seen a huge amount of capital raised.
“One of the other hallmarks of the US is the dominance of private equity in M&A over recent years and they are increasingly aggressive and thematic. We’ve seen that firepower combined with this more aggressive stance in the tactical approach taken by the large US funds, for example in CD&R’s bid for Morrisons or Blackstone’s bid for St Modwen.”