The year 2021 saw the highest total M&A deal value on record, reaching more than US$5 trillion, said Bain & Company recently.
Amid this exuberance, strategic M&A—including both corporate and add-on deals—is on track to reach its highest value in six years, the firm pointed out.
However, the M&A market continues to grow increasingly complex, the firm noted, adding that deals from financial investors, SPACs and VCs grew at two to five times the rate of strategic M&A.
In addition, almost all industries are showing signs of recovery from 2020, with value up and multiples rising, said Bain referring to the findings of its forthcoming M&A Report 2022.
Bain & Company said it surveyed around 300 M&A executives about the critical focus areas for buyers looking into 2022, with talent retention and ESG sticking out as two top priorities.
Strategic M&A multiples are at an all-time high, with a median multiple of 16x EV/EBITDA, according to Bain.
This requires corporate buyers to have a solid grasp on the M&A fundamentals, while also finding additional sources of value, the firm added.
Talent: the critical component to today’s deals
Amid the ongoing war for talent, dealmakers are hyper aware of the importance of good talent management during the transition period that follows a deal, Bain pointed out.
Bain’s research shows M&A executives cite talent retention as a leading driver of deal success in today’s market, yet they note retention is becoming more challenging than ever.
According to the company, the executives it surveyed see two critical factors to retaining talent:
- establishing a strong and compelling vision for the future of the combined company
- defining clear roles for employees in the new organisation
Bain added that too often companies focus only on financial retention packages without addressing these broader considerations at play.
ESG: the next big thing in M&A
Corporate acquirers have yet to put a significant emphasis on ESG, ranking it lowest on their list of diligence priorities today, Bain said.
However, most M&A executives expect this to change in the coming future, the firm noted.
Winning dealmakers will evolve their diligence and integration playbooks, linking their broader corporate strategy to ESG for a given deal and leveraging ESG as a component of the asset’s value creation plan, Bain advised.
An optimistic outlook for 2022
Looking ahead, Bain said it’s optimistic that the fundamentals of dealmaking will continue to attract buyers in the year ahead while most buyers expect deal activity to stay the same or increase in the coming year.
However, M&A executives should continue to monitor the impacts of a tightening fiscal policy and regulatory landscape, macroeconomic factors such as supply chain disruptions, and competition from financial investors with access to significant dry powder, the firm advised.
