Most M&A dealmakers expect to match or exceed their 2021 deals total in 2022, but they’re also concerned that inflation pressures and ESG issues could nix potential deals, according to a recent Datasite survey.
Two culprits–macroeconomic concerns, including inflation, and environmental, social and governance (ESG) issues–will sink the most deals in 2022, said the survey’s 600 executives at private equity firms and other M&A related companies.
Almost half, 48 percent, of the respondents to the November survey expect deal volume to climb in 2022, with another 27 percent predicting deal volume to stay at 2021 levels. Executives in the U.S., the United Kingdom and the European Union by were polled by Datasite, a Minneapolis-based provider of SaaS software for M&A dealmaking.
One of the most surprising results from the survey was that 18 percent of the M&A executives reported that they had deals derailed or delayed because of “bandwidth” issues: They didn’t have enough time or people or resources to get a deal done, says Mark Williams, Datasite’s chief revenue officer for the Americas.
Companies in general were changing to more digital business models before the pandemic, and the stay-at-home work environment and the pandemic’s economic issues forced the companies to speed up those transformations, Williams says. That, in turn, led more companies to M&A, and PE firms and other buyers had a tough time keeping up with the opportunities.
“All of that is driving an environment of creativity and innovation and dealmaking as people are looking for growth, they’re looking to capitalize on those opportunities,” Williams says. “It’s kind of a perfect storm with that very rapid change in the working environment and the way companies do business and go to market, coupled with low interest rates and a large amount of dry powder.”
In evaluating target companies, 32 percent of the surveyed executives say organic growth potential will be the most important consideration in 2022, ahead of revenue or cost considerations. Looking back, more than 70 percent of the survey respondents say that inflation affected a deal they had worked on in 2021, by changing company operating assumptions, affecting deal valuations or causing a deal to fall apart.
– Keith Button
