Down bad – Macro pressures, war cause M&A figures to fall

Data InsightDealspeak 11 April

Down bad – Macro pressures, war cause M&A figures to fall

EMEA deal activity stumbled at the start of 2022, failing to repeat last year's record highs. It was at its lowest quarterly level since the start of the COVID-19 pandemic, according to this news service’s 1Q22 M&A Highlights, as geopolitical turmoil curbed big-ticket M&A. 

The amount spent fell to USD 256.9bn across 2,246 deals, down 43.2% from the USD 452.1bn spent in 4Q21. Total value was below USD 100bn in each of the first three months of this year; this happened in only three months between September 2020 and December 2021. This shows a return to pre-pandemic levels of activity, with the 1Q22 value near the quarterly average of USD 257.6bn between 2015 and 2019. 

The reasons for this are straightforward. Russia’s invasion of Ukraine, which began in late February, and compounded by inflation and the likelihood of rising interest rates, meant just two deals above USD 10bn were announced in 1Q22.

Electric spark

Opportunities for dealmaking remain amid the crisis. Tech, for example, is responsible for much of the dealmaking still taking place. The sector was by far the most active in the region in Q1, with its 634 deals accounting for 28.2% of the total. 

One subsector to watch is cybersecurity, with several sale processes planned or ongoing. Among them, Germany-based biometric provider IDnow has mandated Goldman Sachs for a potential sale. 

Renewables should also continue to see interest. The war in Ukraine has made countries averse to Russian oil and gas and prompted a pivot to renewable energy. Investment should follow. As noted in the Morning Flash, Spanish energy firm Repsol [BME:REP] is contemplating selling high on its renewables business; it could realise around EUR 3bn for a 25% stake in the unit.

Sponsor scheme 

The level of PE-led dealmaking has loosely tracked that of overall M&A, falling by almost a third from 1Q21 to USD 57.1bn in 1Q22. Much of this year’s total has been driven by Blackstone’s [NYSE:BX] USD 23.8bn acquisition of UK-based logistics firm Mileway. Thanks to this deal, though, the total value of PE-led dealmaking has stayed above USD 50bn for six successive quarters.

This streak may yet continue. The PE pipeline remains strong, with high-profile auctions underway and dry powder available. Sandoz, Novartis’s [SWX:NOVN] generic-pharmaceuticals unit valued at around USD 25bn, has reportedly drawn interest from Blackstone and Carlyle; if sold, it would be the largest deal so far this year. 

UK-based pharmacy chain Boots, owned by giant Walgreens Boots Alliance [NASDAQ:WBA], is likely to be sold for around USD 11bn, with several sponsors and corporates reportedly involved in the sale process. 

Meanwhile, sponsors are reportedly interested in CVC-backed, Netherlands-based fund-services provider TMF Group, and CVC could realise up to EUR 3.7bn, according to Mergermarket.

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