Over the years we have analyzed the Intralinks Deal Flow Predictor (DFP) to estimate future M&A activity. Time and time again, the DFP has proven to be a very reliable indicator of the number of deals that will be closing in the next six months plus. We are assuming this will be the case in 2022 despite a number of unknowns including the impact of the war in Ukraine (see editor's note below), rising interest rates, and the lingering impact of COVID.
However, despite all of these challenges, Intralinks DFP indicates that deal volume should remain stable in 2022. Here is how they describe it:
Despite the world still being in the grips of the COVID-19 pandemic, announced global M&A activity in 2021 reached record levels. According to the Financial Times, quoting figures published by Refinitiv, deals worth more than USD 5.8 trillion were completed worldwide, a 64 percent rise from 2020 and the fastest pace of growth since the mid-1990s. Meanwhile, deal value was 54 percent higher than in 2019.
The market widely anticipates a robust year of dealmaking in 2022. However, proactive dealmakers need to be ready to pivot if potential headwinds materialize.
The impact of rising inflation and the expectation that central banks will be forced to intervene via interest rate increases is already having an impact on markets. It will naturally have an impact on the cost of capital and how deals are funded. For private equity (PE) funds sitting on record levels of dry powder, this may require an increase in the equity ticket on each transaction. This has a knock-on effect on business development plans for the portfolio company and returns on investment – but for corporates, it may just make some deals too expensive to pull off.
As we have discussed before, the sad reality is that when geopolitical issues such as the war in Ukraine rear their ugly heads, the demand for companies located in very stable economies, such as the U.S., goes up. The anticipated dramatic decline in Eastern European M&A transactions will simply drive buyers and PE firms to North America where U.S. and Canadian firms will become even more attractive.
Despite planned interest rate increases over the next 12 months, the fact is there are no more stable economies in the world than here. A decline in ROI due to interest rates is a safe haven when compared to what we are seeing in Europe right now.
As we have learned, the opening of VDRs (virtual data rooms) has been (and will continue) to be accurate indicators of future M&A activity, despite geopolitical issues impacting the world. The key is being nimble and prepared to take advantage of the possibilities presented by a climate of the unknown. Humans naturally fear change, especially change that is unknown. This is how Donald Rumsfeld once put it:
There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.
I don’t “know” about you, but I think that sums up the fear that freezes so many of us into inaction when we need action! And business owners today need action. Waiting to see how high interest rates may rise, how the pandemic may end, and what happens in Ukraine are not wise. Waiting is not sustainable in today’s volatile economic world. Action is!
If you would like to learn how you can thrive during the next 12 to 18 months in this “unknown” world, please reach out to us and we will put you in touch with one of our Growth and Exit planning professionals who can help you navigate these waters.
And remember, the Intralinks DFP is rarely wrong!
Intralinks Editor’s note: The SS&C Intralinks Deal Flow Predictor for Q2 2022 was completed at the end of February 2022. While we attempt to factor in as many external variables as possible in our M&A prediction, the invasion of Ukraine by the Russian Federation on February 24, 2022, was not included in our forecast for global M&A deal flow. Eastern European deals have been subsequently impacted by the conflict. However, from a total regional perspective in Europe, issues such as inflation and supply-chain challenges are currently outweighing any concerns related to the invasion.
The SS&C Intralinks Deal Flow Predictor provides Intralinks’ perspective on the level of early-stage M&A activity taking place worldwide during any given period. The statistics contained in this report reflect the volume of VDRs opened or proposed to be opened, through Intralinks and other providers for conducting due diligence on proposed transactions, including asset sales, divestitures, equity private placements, financings, capital raises, joint ventures, alliances and partnerships. These statistics are not adjusted for changes in Intralinks’ share of the VDR market or changes in market demand for VDR services.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.Betty L. Brennan, President, Taylor Studios
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
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The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.Salvo Stoch, Founder and CEO of Sleeping Partners
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.Rick Greene of Dobbs Equity Partners LLC
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!Tom Currier, Former President & CEO, Rackmount Solutions
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.JoAnn Ellis, Owner of Fondren 5 Star Kennels
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.Shane and Johanna Kline, Owners of Vision Upfitters
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
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I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
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