Can M&A maintain its growth in emerging markets into 2022?

An improved business climate, significant government stimulus and cheap finance helped to create a record year for mergers and acquisitions (M&A) in 2021, with global activity reaching an all-time high.

According to data from financial markets platform Dealogic, global M&A activity totalled $5.6trn last year, a 63% increase on 2020’s figure and considerably higher than the previous record of $4.4trn, set in 2007.

Financial market data provider Refinitiv came to a similar conclusion in its assessment of 2021, calculating $5.9trn worth of M&A, equivalent to growth of 64% on 2020.

The US led the way with $2.6trn in deals, an increase of 82%, followed by Europe, up 46% to $1.4trn, and the Asia-Pacific region, which rose by 48% to $1.3trn.

In terms of sectors, tech maintained its position as the largest source of M&A, with tie-ups increasing by 71% to $1.15trn, one-fifth of total global transaction value.

After being cautious throughout much of 2020, private equity firms played a key role in transactions last year, accounting for a new record of $1.2trn in deals, a 111% increase.

Meanwhile, the rapid development of special purpose acquisition companies (SPACs) – shell corporations listed on a stock exchange with the sole purpose of acquiring a private company – also had an impact on the market, with SPAC listings tripling last year to make up 10% of the overall M&A market.

Alongside this, central banks’ interest rate cuts combined with government stimulus programmes to bolster growth and provide access to liquidity and debt for deals.

While high-income markets in North America and Europe drove global M&A growth in 2021, there were significant developments in a number of emerging markets.

Latin America recorded a 113% increase in the value of completed M&A, with $95.7bn, driven by significant activity in Brazil and Mexico.

There were similar gains in the MENA region, where the push towards diversification and liberalisation is helping to drive tie-ups and other business deals.

According to Refinitiv, M&A in the region reached $109bn last year, a 57% increase on 2020. It was also the first year in which there were more than 1000 deals.

The largest M&A deal in the region was a $15.5bn lease-and-leaseback deal between Saudi Aramco and a consortium led by US investment firm BlackRock, related to the former’s gas pipeline network.

This came after Saudi Aramco had, earlier in the year, sold a 49% stake in its oil pipelines to another US-based consortium, in a deal worth $12.4bn.

Elsewhere in the region, Saudi Arabia’s National Commercial Bank merged with Samba Financial Group in April. That the same month Kuwaiti supply chain company Agility and Danish transport company DSV signed a $4bn deal that will see DSV acquire Agility’s Global Integrated Logistics business.

Although a specific set of circumstances helped drive M&A performance in 2021, the trend is expected to continue this year.

Despite an anticipated increase in interest rates amid rising inflation, global consultancy KPMG has forecast activity will remain strong throughout 2022.

In particular, ESG principles – an increasingly prominent element of many boardroom agendas – may generate a lot of deal activity going forwards.

Indeed, while acknowledging the challenges to M&A growth, KPMG expects activity to remain strong for some time, considering the volume of new pitches towards the end of 2021, which will only come to fruition in the first and second quarters of 2022­­.