Middle Market Mergers & Acquisitions (M&A) Outlook for 2022
"It was the best of times, it was the worst of times," runs the opening line of Charles Dickens' "A Tale of Two Cities." It also provides a fitting description of the past 20 months in Canada and the rest of the world. The pandemic rages on, the number of covid cases are on the rise, people adjusting to the new normal with on-again / off-again restrictions. Despite all of this, the M&A market since the brief lull in the second quarter of 2020, has been extremely strong.
Canada’s capital markets hit new heights in 2021, setting records for the amount of money raised in initial public offerings, and for the total value of mergers and acquisitions. Deal activity continued to flow freely for the second year in a row, with M&A transactions totalling US$349-billion across 4,558 deals, according to data from Refinitiv. That figure tops the previous record set in 2007 when deal value totalled US$312.2-billion.
The above chart further highlights the robustness of M&A activity in the Canadian Middle Market.
What is in store for 2022?
There are headwinds brewing, some of which are not new but have yet to fully play out - projected interest rate increases, the recurrence of new COVID-19 variants, various macroeconomic uncertainties and reduction of government stimulus. Offsetting these headwinds are some strong building blocks for continued M&A growth - strategic buyers with strong profits have built up cash stockpiles and are aggressively pursuing both vertical and horizontal acquisition opportunities, private equity firms who were active buyers over the last 12+ months have replenished their coffers and have plenty of dry powder to deploy.
Distinct Capital Partners View for 2022:
We believe that deal-making in the Middle Market will continue to remain strong during 2022 due to the following factors:
Continued Retirement of Baby Boomers:
A large number of Small & Medium-sized business owners are over 50 years old and they are looking to exit in the short-to-medium term.
Low-Interest Rates:
Even after the expected rate increases over the next 12 to 18 months and the winding down of government stimulus, interest rates will most likely settle around pre-pandemic levels. This level of interest rates is still very conducive to deal-making as evidenced by the strong M&A activity pre-pandemic from the chart above.
Strong Demand for well-run Businesses:
Both Strategic Acquirers and Private Equity firms have taken advantage of the accommodative monetary policy and have a significant war-chest to deploy.
We at Distinct Capital Partners have decades of experience in helping small and mid-sized business owners successfully achieve their transition goals in all types of the business cycle. If you are thinking of selling your business in the near-to-medium term, please contact us and we will be happy to assist you with your transition goals.
Sources:
1. Coming of age amid crises: A year in Europe by Andrew Woodman December 19, 2021.
2. Canadian companies were involved in a record US$350-billion of M&A deals last year – Globe & Mail, January 6, 2022.