Recent events in Ukraine have injected a degree of uncertainty in financial markets and heightened uncertainty usually leads to a slowdown in new deal activity, as buyers and sellers assess the impact of events on their investment and business strategies.
However, the extent to whether the situation in Ukraine leads to a slower deal volume or an actual decline in deal activity remains unclear. Importantly, there is a significant amount of dry powder to be deployed in M&A activity; most investors are making long-term investment decisions; and actions taken to sanction Russia are not expected to have a significant impact (i.e., contagion to the financial system) on the global economy.
This is not to say that investors are not closely watching as the situation unfolds. As an example, we know that companies whose cost structure is tied to hydrocarbons have already begun to experience higher costs and supply bottlenecks, which will impact short-term earnings, and therefore potentially impacting valuations.
Despite this uncertainty, because of the mitigating factors we outlined above, tailwinds remain strong for M&A activity as we head into the second half of the year, though they have abated somewhat from the phenomenal growth experienced in 2021.
– Ken Hirsch is a managing director at middle-market investment bank Founders Advisors.