Technology, media and telecommunications dominate mergers and acquisitions in the first half of 2022

M&A activity has slowed from its record pace of 2021, with economic headwinds delaying deals in the first half of 2022. However, M&A activity in the first half of 2022 is returning to levels pre-pandemic of about 25,000 transactions. More than a third of deal value is invested in technology, media and telecommunications (TMT), reflecting the impact of digital transformation on the conduct of deals, consultancy PwC says in an update mid-year review of global trends in the M&A industry.

“Lower valuations should provide better opportunities for traders to generate healthy returns, as evidenced by recent public-private transactions which are up more than 50% in 2022 compared to the prior year period.”

Private equity (PE) now accounts for nearly 50% of total deal value, double the level of five years ago, with capital raised for investment hitting a record $2.3 trillion.

“Many of the factors that supported the record M&A market in late 2021 and the first half of 2022 – such as supply chain resilience, portfolio optimization, environmental, social and governance aspects (ESG) and, most importantly, the need for technology to digitize business models – will remain influential for closing deals in the second half of 2022, but the approach to how those deals are done will require a new focus in an uncertain economic environment .

“With inflation in many countries reaching a 40-year high, negotiators will need to approach due diligence with a different focus – predicting different inflation scenarios and considering implications on market share, elasticity pricing, customer and supplier relationships, and employee compensation and retention.”

“Labour strategy will need to be a priority in any deal as the highest wage inflation in decades, the ‘big quit’, skills shortages and growing stakeholder focus on diversity and inclusion will all have an impact on future business performance.”

The report indicates that the M&A reset is underway in all major regions. Asia-Pacific saw the largest declines, with transaction volume and value each down more than 30% from the 2021 peak, mainly due to macroeconomic headwinds and recent pandemic-related restrictions imposed in several major cities in China.

Tendencies:

  • Technology, Media and Telecommunications (TMT): Digital adoption of new technologies remains a priority – keeping TMT in the lead in M&A investment, accounting for more than a quarter of deal volume and a third of deal value in the first half of 2022. We expect technology demand to create M&A opportunities in software and infrastructure technologies (such as 5G, data centers and metaverse and its related technologies) in the second half of 2022.
  • Financial Services (FS): The financial services industry’s need for digital capabilities, combined with continued pressure from regulators and platform and fintech disruptions, means that mergers and acquisitions will continue to be a driver of transformation. It also explains why FS is second only to TMT in terms of M&A investment, accounting for nearly a quarter of deal value in H1 2022. The continued focus on technology, growing demand for Sustainable investment options and falling valuations will keep M&A activity high in the second half of the year.
  • Consumer markets: Mergers and acquisitions activity in the consumer markets sector over the next six months will be closely linked to the impact of the uncertain economic outlook on consumer confidence and spending. Changing consumer preferences will continue to create M&A opportunities as companies seek to transform their business models and reposition themselves for future growth.
  • Industrial and Automotive Manufacturing (IM&A): Continued focus on technology and digitization of business models, investment in supply chains and workforce will create M&A opportunities in IM&A.
  • Energy, Utilities and Resources (EU&R): The continued acceleration of the energy transition and the growing focus on supply chain security will drive mergers and acquisitions in the areas of critical minerals and national energy supply in the second half of 2022.
  • Health Industries: Strong demand for biotechnologies and innovative new technologies – such as mRNA, gene therapy and telehealth capabilities are attracting investor interest. To achieve inorganic growth goals, big pharma will likely undertake a greater number of smaller deals to avoid the regulatory scrutiny and complexity that larger deals can bring.

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