M&A outlook for Q3 and Q4 2022 and 2023

2021’s deal volume wasn’t sustainable – deals moved at a record- setting pace fueled by low interest rates, strong corporate earnings, abundant cash, 2020 carry-over and other factors. 2022 deal volume may be lower by comparison but it’s still higher than in past years and we see it remaining so for the remainder of 2022 and into 2023. However, it’s important not to focus on transaction volumes as an indicator of the overall health of M&A but rather on deal rationale. Investors need to deploy capital and scale existing platforms, and corporations need to temper their desire to grow faster than organic growth permits. These drivers suggest a strong foundation for getting a deal done.

The long-term outlook remains strong. There’s an abundance of corporate and private equity capital available – over USD 1.4 trillion in undeployed private equity, compounded with another USD 450 billion of private debt capital. With corporate cash balances exceeding USD 260 billion – a historic high mark, private equity buyers are not alone.

At the same time, the “Great Resignation” that impacted so many executives, managers and frontline workers is also affecting shareholders. With an increasingly uncertain economic and geopolitical outlook, high inflation levels and higher interest rates, increasing energy and other commodity costs (reminiscent of the 70s and 80s), and constrained labour, shareholders, particularly Baby Boomers, are saying it is time to move on. They survived the Great Recession of 2008 and 2009. They benefitted from over a decade of growth. Adding to their overall wealth was a market that climbed over 200 percent during this time. Now they are beginning to tap out.

When you mix an increasing supply of quality businesses with relatively high valuations, an overhang of capital and challenging organic growth, you get an M&A market that will survive temporary market hiccups, making any slowdown in deal activity short-lived.

The good news is the overall outlook for M&A for the remainder of 2022 and 2023 is positive. It will continue to evolve as supply chain and geographic impact, and ability to adapt to rapidly changing market dynamics will become critical points of value consideration.

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