Perspectives – Marc Cooper – November 2021

The Year of All Years: Looking Back at 2021

By almost any measure, 2021 will go down as one of the greatest M&A years of all time. As I wrote back in January (Gaining Certainty After an Uncertain Year), the industry entered this January with reasons for optimism, yet I don’t think anyone was predicting the M&A boom that eventually unfolded.

Why was 2021 a year for the record book? Let’s count the ways. A sturdy economy and stock market? Check. Healthy balance sheets and low borrowing costs? Check. Private equity activity and a hyper-active IPO environment? You get the point.

This was the year of all years and while we don’t expect to see a repeat in 2022, per se, there are a lot of positive indications that next year’s M&A market will be robust. There’s a tremendous amount of liquidity in the marketplace and access to cheap capital. As private equity looks to deploy funds raised over the last several months, companies will also continue to look for ways to grow via acquisitions and consolidation. Uncertainty creates opportunity and with a lot of strong momentum at their back heading into next year, I don’t think companies will sit idly.

Yet, just as we started this year with some question marks, the same holds true for 2022. Inflation has proven to be anything but transitory, just as we predicted, and with supply chain woes still in the picture, anti-trust shining its light on mergers, and a potential rise in interest rates, we’ll be keeping an eye on how the stock market absorbs all of this. If the market reacts poorly, we can anticipate M&A to be a bit slower.

I expect SPAC activity will also decrease next year, though that’s likely less related to the broader macro concerns and more of a reflection on the asset class itself. Growing up is never easy as SPACs learned this year, and we expect to see a tighter market here moving forward. Investors have become far more sober and less speculative, which ultimately is a good thing. SPACs are not going away, but they do have to find a way to distinguish themselves in the market and redefine how they fit within the system. The result will be far fewer risky companies and a renewed focus on stable growth businesses.

If my predictions are right and all other factors remain equal, I think we’re in for a strong M&A year in 2022. Market factors will be the true scale tippers, but I see reason for optimism. While 2021 was a year for the M&A record books, we have lived through all types of market conditions and stand ready to support clients in all types of market cycles.

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