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Global M&A activity topped record US$5 trillion in 2021

Global merger and acquisition

Technology and healthcare led the way again in 2021, driven partly by pent-up demand from last year when the pace of M&A activity fell to a three-year-low due to the pandemic

Global merger and acquisition (M&A) activity shattered all-time records in 2021, comfortably erasing the high-water mark that was set nearly 15 years ago, as an abundance of capital and sky-high valuations fuelled frenetic levels of dealmaking.

The value of M&A globally topped US$5 trillion for the first time ever, with volumes rising 63 per cent to US$5.63 trillion by Dec. 16, according to Dealogic data, easily surpassing the pre-financial-crisis record of US$4.42 trillion in 2007.

Corporate balance sheets are incredibly healthy, sitting on US$2 trillion of cash in the U.S. alone – and access to capital remains widely-available at historically low costs, said Chris Roop who co-heads North America M&A at JPMorgan.

Technology and healthcare, which typically account for the biggest share of the M&A market, led the way again in 2021, driven partly by pent-up demand from last year when the pace of M&A activity fell to a three-year-low due to the global financial fallout from the COVID-19 pandemic.

Companies rushed to raise funds from stock or bond offerings, large corporates took advantage of booming equity markets to use their own stock as acquisition currency, while financial sponsors swooped on publicly listed companies.

Moreover, robust corporate earnings and an overall bright economic outlook gave chief executives the confidence to pursue large, transformative deals, despite potential headwinds such as inflationary pressures.

Strong equity markets are a key driver of M&A. When stock prices are high, that usually corresponds with a positive economic outlook and high CEO confidence, said Tom Miles, co-head of Americas M&A at Morgan Stanley.

Overall deal volumes in the United States nearly doubled to US$2.61 trillion in 2021, according to Dealogic. Dealmaking in Europe climbed 47 per cent to US$1.26 trillion, while Asia Pacific rose 37 per cent to US$1.27 trillion.

While China cross-border activity has been modest, corporates from other Asian countries have stepped up to buy global assets. We expect to see this trend continue, especially for deals in Europe and the United States, said Raghav Maliah, Goldman Sachs’ global vice chairman of investment banking.

Easy availability of financing drove private equity deals, with volumes more than doubling from last year to a record US$985.2 billion, according to Dealogic.

Investors are deploying cash at an unprecedented pace which means that, on a global basis, asset valuations have peaked to historic levels, said Luigi de Vecchi, chairman of Europe, Middle East and Africa banking capital markets advisory at Citigroup.

Luigi said: The question is whether the prices being paid now will continue to make sense over time.

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