As the economy began its surging recovery in 2021, financial markets followed suit. Merger and acquisition (M&A) activity reached its highest level since 2015,
The rebound from a quiet 2020 is expected to continue into 2022, though there will likely be fewer deals in 2022 than 2021.
Low interest rates have enabled significant financing to purchase companies with very high valuations. As interest rates rise, investment in innovation and financing activity is expected to slow.
91社区 has reviewed the sectors with the greatest merger and acquisition activity in 2021 and 2022.
The sectors are broadly defined, including technology, industrials and chemicals, healthcare, business and financial services and media.
Specific deals and industry data from 91社区 reports clarify what types of companies and markets have experienced high deal volume in 2021 and 2022.
1. Technology
Technology companies experienced the greatest M&A volume in 2021, . Though a broadly defined sector, technology companies include construction and infrastructure platform developers as well as robotics engineers.
Hyundai Motor Company鈥檚 (Hyundai) $1.1 billion acquisition of robotics developer Boston Dynamics is one of the most significant deals of 2021 in any sector.
Smaller deals, such as Algolia鈥檚 acquisition of Search.io, an AI-powered web search tool, and Reliance Industries Limited鈥檚 acquisition of SenseHawk Inc., a platform for managing solar infrastructure projects, give insight into the nature of technology deals in 2022.
Large companies often purchase innovative smaller companies to enhance their own technologies, as in the case of Hyundai and Algolia.
The industries feeding the tech deal frenzy include , and , with the latter industry often being at the crux of technology innovation and buyouts.
The number of businesses in the Scientific and Research Development industry has increased an estimated 8.5% and 5.3% in 2021 and 2022, respectively, reflecting a growing supply of innovative companies yet to be acquired.
2. Industrials and Chemicals
The industrials and chemicals sector .
For example, SK Capital Partners LP purchased a majority interest in chemical company Deltech LLC, producing monomers and polymers used for product packaging, in 2021.
Activity picked up as factories and plants reopened and business operations returned to normal in late 2020. Rising wages and input costs encouraged manufacturers and other industrial companies to seek out cost synergies.
Venture capital and private equity firms have since moved in to take advantage of rising expected revenue for energy and materials companies in 2022.
Industries driving this M&A activity include the , the and the . The Petrochemical Manufacturing industry鈥檚 high level of market concentration, with the four-largest operators expected to account for 69.1% of industry revenue, highlights the prominence of acquisitions.
3. Business and Financial Services
Various businesses from nearly all sectors use business and financial services companies. Within the business and finance sector, several companies have developed innovative ways to analyze business data, loan money to customers, make payments more efficient and manage workflow.
Naturally, software companies dominated this sector鈥檚 M&A activity in 2021 and will likely continue to shine in 2022. Business and finance services added 1,691 M&A transactions in 2021.
These operators provide services to both businesses and consumers. Financial services company Stripe Inc. purchased Indian financial operations platform Recko in 2021. Recko鈥檚 technology helps businesses manage revenue by reconciling payments, deposits, refunds and other important financial processes.
In 2022, Block Inc., provider of Square payment system technology, acquired Afterpay Limited, a 鈥渂uy now, pay later鈥 financing company increasing sales and purchasing power for small businesses.
Major deals in this sector also included companies from , , and .
HR and Payroll Software companies are especially attractive to investment firms as the average EBIT/revenue ratio (operating margin) has risen between 2017 and 2022.
4. Healthcare
Healthcare has continued its trend of high M&A volumes into 2022; in 2021, the sector tallied 976 M&A deals. Key industries in the healthcare space include and .
is another key industry driving healthcare M&A activity. Known for innovative solutions and high earnings potential, the industry is prone to speculation by investors.
91社区 estimates that the number of biotechnology companies has grown an annualized 7.5% in over the five years to 2022. New operators entering the space and relatively high market concentration indicate high M&A activity.
In March 2022, Pfizer Inc. completed its $6.7 billion takeover of Arena Pharmaceuticals Inc., a company hoping to treat immune-inflammatory diseases. This acquisition represents the common practice of large companies betting on smaller innovators as a substitute for internal research investment.
5. Media
Despite recording 186 deals in 2021, the media sector鈥檚 M&A value totaled a significant $182.9 billion. As the COVID-19 pandemic pushed consumers toward online consumption habits, home entertainment and digital advertising flourished.
Deals in this sector include the merging of streaming and content platforms in addition to the purchasing of character and brand rights for content production.
Netflix Inc.鈥檚 $700.0 million purchase of the rights to Charlie and the Chocolate Factory and AT&T Inc.鈥檚 spin-off of Warner Brothers and merger with 91社区y Inc., valued at $96.0 billion, exemplify the variety of transactions occurring in the media space.
has also experienced high M&A activity. The industry鈥檚 contribution to the overall economy has increased at an annualized rate of 12.1% over the 10 years to 2027, rising at a much faster rate than US GDP, indicating its continued significance.
Final Word
Though a key piece of the puzzle, low interest rates were not the only factor driving higher M&A activity in recent years.
Innovative products benefiting both consumers and businesses have emerged as technology plays a larger role in the economy and our lives -- these new products resolve small headaches and offer life-changing treatments for disease.
Still, rising interest rates come with lower expected earnings, higher discount factors and lower valuations for deals.
The M&A market, however, already shows signs of slowing in 2022. Analysis from PricewaterhouseCoopers points to
Negative shocks to the economy and financial markets are only expected to strengthen in 2023, leading to a bleak outlook for M&A activity.
Industries searching for cost synergies and higher profit through mergers will likely experience higher deal volumes in 2023. Speculative industries with yet-to-be-seen cash flows will see fewer deals.
