Rubicon - A Look Back at 2022 Q1 M&A Activity

A Look Back at 2022 Q1 M&A Activity

As we exit the first quarter of 2022, all the buzz is around the slowdown in M&A activity.

It’s true that deal activity in the beginning of 2022 is a drop from Q4 2021, as well as a drop compared with Q3, Q2, and Q1 of 2021 because there was so much pent-up activity as pandemic closures waned.

But what you must consider is that 2021 was a record-breaking year for M&A.

What has happened in 2022 so far would be considered strong in any other year, with deal volume close to 2,000. It is about on the same level of deal volume as all four quarters of 2019 and the first quarter of 2020—in other words, pre-pandemic. As with many things, the pandemic threw deal-making out of order.

As Data site and Mergermarket put it in their report, Deal Drivers: Americas Q1 2022:

“Q1 2022 saw activity fall from the previous quarter, though, given the circumstances, it was hardly a debilitating decline. Annually there was a more marked drop-off, but that does not make for a fair comparison, either, given that 2021 was the most explosive year for M&A in history in much of the world.”

“With this in mind, it is better to view Q1 2022 as a reversion to the mean after an outstanding run, rather than a disconcerting decline, at least for the time being.”

Given this, I do not think we are out of the woods yet as far as a potential near-future slowdown in M&A activity. But, I agree with the report’s conclusion that, barring any major incidents, dealmaking will be robust and sustainable through 2022.

However, in the report, Data site and Mergermarket caution that inflation and issues with the macroeconomy could potentially cause slowdowns down the road.

There are some factors to consider.

According to Preqin’s Alternatives in 2022 report, there was a record amount of dry powder, $1.32 trillion, held by PE firms, as of September 2021. Word out there is that this record level of cash is coming down a bit.

And given the turbulence in the markets and economy as of late, it may be in their interest to hold on to this cash longer, even though with inflation, the last thing you want to be holding is cash.

On the other hand, turbulence might cause Sellers to be more open to more “reasonable” multiples. I can see the potential for there to be real bargains out there, which will drive more deals.

In other words, it could be a real Buyer’s market in the future.

That is why, when looking at these trends and forecasting, you cannot overlook the fundamental dynamics of how people respond to a crisis. They are ruled by fear and greed, and that could be the case in the potentially challenging times ahead.

For example, during the pandemic, Sellers were forced to wait out the storm. But, this coming economic downturn, which some market watchers are predicting, looks to be deeper than the pandemic.

But unlike the doomsayers, I see more opportunity than anything else. Remember, this could signal a transition from a pandemic-fueled Seller’s market to a Buyer’s market, which will drive increased acquisitions.

The deal activity could slow down in certain sectors, with consumer products and leisure being the hardest hit. Again, that means an opportunity for aggressive Buyers.

But the doom and gloom are not resonating across the board. The most resilient sector out there is technology.

Tech will not go away. It is not as constrained as the industrial, consumer products, and leisure sectors.

Energy costs, which are rising, of course, are not a big factor in tech. In those other sectors, distribution relies on fuel. And when it costs $5,000 to fill up a truck’s tank, and it used to cost $2,000, those costs are passed on.

All this said, the deal flow does not look to be going away, but it will be something to monitor closely.

In fact, I think it’s good for us to see that things don’t go up and to the right indefinitely. Disruption creates opportunity.

In these times, you can get creative. Prices and valuations are coming down. That means that despite inflation, Buyers’ money will go further as we transition into a Buyer’s market.

That is another reason I do not foresee a deal-making slowdown later this year.

And here is one more thing to remember: In 2019 and early 2020, pre-pandemic, there were maybe 5,000 PE firms out there. Now, there are more than 6,000. The new firms, formed during the pandemic, tend to be small and tech-focused, but they are chugging away. And, especially in tech, there is no shortage of targets.

Other areas of activity look to be pharma, business services, and financial services…with the rest of the sectors lagging.

In short, while there has been a drop in deal-making in the first quarter of this year, I do not think this is the beginning of a downward spiral. Rather, this is getting “back to normal” after the pandemic.

But the outlook is that what was a Seller’s market will shift to a Buyer’s market. So, if you are looking for an acquisition, you are in a good spot.

No matter how many deals are going on out there, specialty M&A insurance coverage, like Representations and Warranty (R&W) or Transaction Liability Private Enterprise insurance (TLPE), which is for deals under $20M EV, is a must-have these days.

Please contact me, Patrick Stroth, for more information on this and other coverage at

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