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Dealmaking drops in H1 but shows resilience

Global dealmaking by private equity funds has collapsed in the first half of 2022 as banks have pulled back financing in a risk-off environment.

• During the first half of 2022, global M&A fell by at least 20% in value and volume with sponsor-led activity less affected

• Mega deal trend is starting to wane and capital structures look more conservative

• UK remained Europe’s largest private equity market in H1, followed by Netherlands

Global dealmaking by private equity funds has collapsed in the first half of 2022 as banks have pulled back financing in a risk-off environment.

Across the M&A market globally, activity fell by 23% in value to USD 2.2 trillion in H1 2022, compared with the same period last year, according to data from Dealogic. By volume, the drop was 20% to 15,764 deals over the same period.

Sponsor-led activity, which typically involves private equity firms, showed a relatively smaller 13.1% decrease in value compared to H1 last year, buoyed by several large and high-profile buyouts in Q2 such as Blackstone’s $46.4 billion majority acquisition of Atlantia, the $21 billion takeover of Ramsay Health Care by KKR and the $10.3 billion take private of Zendesk by Hellman & Friedman and Permira consortia.
“M&A is just plummeting,” says a partner at a major UK-based private equity fund. “We’re not yet seeing proper adjustments [to valuation] in seller expectations and volume is quite small, but there’s more pain to come.”

There are two views here: a year-on-year slowdown; or cyclical resilience.
According to EY, global M&A activity has remained remarkably resilient and CEOs continue to have a healthy appetite to pursue transactions. Indeed, compared to the average of the last deal cycle prior to the pandemic (2015- 2019), H1 2022 activity is up 35% by value and 13% by volume.

Other trends are also evident in the H1 dealmaking data and were examined in Private Equity Wire’s latest Insight Report.

In private equity, there has been a multiyear trend toward bigger funds doing bigger deals. The trend accelerated in 2021, but the real shift came in the market’s broad middle, where the number of $1 billion–plus deals roughly doubled last year – increasing average deal size by 57% and pushing it past the $1 billion threshold for the first time, according to consultant Bain.

During H1, in Europe, Blackstone and Edizione’s $46.6 billion public offer for Italian transport firm Atlantia was the largest European leveraged buyout on record.

However, this mega-deal phenomenon seems unlikely to continue to grow through 2022. In the US, there were only 17 private equity transactions valued at $1 billion or more in the first three months of 2022, accounting for nearly $80 billion in total value, according to Pitchbook. Over the course of 2021, the total was 124 mega-deals, totalling $377 billion.

Given that many of the deals recorded in Q1 2022 would have been initiated at the end of 2021, before the Ukraine war, H2 2022 deal volumes may be even more vulnerable to the inflation, recession fears and rising cost of capital of H1.

The average time to close a deal has also increased in 2022, with 60% of transactions during the first six months taking over 70 days (the long-term average time between announcement and closing), compared to 54% in the first half of 2021, according to WTW’s Quarterly Deal Performance Monitor (QDPM).

For the buyout activity that is continuing, capital structures were also more conservative in H1 than at any point in the last 10 years, according to data from the Centre for Private Equity and MBO Research (CMBOR) in July, showing that sponsors and lenders alike clearly cautious against a backdrop of rising interest rates and squeezed earnings.

The UK remained Europe’s largest private equity market by both volume and value in H1, according to the CMBOR, with the Netherlands jumping to second in value after 3G Capital’s €6.3 billion buyout of Hunter Douglas and Apax Partners and Warbug Pincus’ €5.1 billion acquisition of T-Mobile Netherlands.

Despite – or maybe because of – the correction in the public markets, technology remains the most active sector for M&A and is expected to offer the strongest returns for buyout investors going forward, according to research by Private Equity Wire. In a June industry survey, when asked ‘Which sector do you expect to see the strongest returns for private equity buy-out funds going forward?’, around one in three respondents pointed to technology/IT, with healthcare a close second.

Key Takeaway: 2021 was a peak for private equity dealmaking in the current economic cycle. M&A activity is falling in 2022 but so far still appears strong compared to previous cycles


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