M&A dealmakers optimistic for 2022 despite pain of record-high prices: Bain

MERGERS and acquisition (M&A) executives are bullish on the prospects of continued deal momentum in 2022 despite high prices and intense competition.

Based on findings from consultancy Bain & Co's fourth annual M&A report, some 89 per cent of more than 280 executives surveyed anticipate their own deal activity to remain the same or increase this year.

This comes even after deal values exceeded expectations at a record-breaking US$5.9 trillion in 2021, which Bain attributes to companies' race to acquire transformative capabilities and to scale up in a "historic land grab".

"Some buyers were motivated by the plethora of available assets and low cost of capital; others jumped into the fray to stay competitive as their peers did deals," noted the consultancy.

Bain also highlighted that recent M&A activity includes significant participation not only from corporate buyers but also greater value from add-on deals, where investors buy and combine multiple platform assets to create scale.

Fueled by record valuations, strategic deals including both corporate deals and add-ons achieved US$3.8 trillion in value - up 47 per cent from the previous year.

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Currently, consumer product deals are at an average of 16 times EV/Ebitda (enterprise value/earnings before interest, taxes, depreciation and amortisation) in 2021, up from 14 times in 2020. There is also "extra pressure" on these deals to deliver, observed Bain, given how cost synergies today are lower than they are with larger-scale transactions.

Despite rising M&A prices, Bain believes many fundamentals for dealmaking will remain attractive in 2022 and beyond as it does not anticipate a significant change in the relevance of M&A as a growth driver for businesses.

Among the executives surveyed by Bain, 80 per cent said deal activity was part of their broader business strategy in 2021 - while more than half (52 per cent) cited the availability of attractive assets on the market as a driver of deals.

"Dealmakers that come out ahead in 2022 will be the ones that lean in, especially focused on the commercial opportunities brought by ESG (environmental, social and corporate governance), talent retention and revenue synergies," said Andrei Vorobyov, a partner in Bain's M&A practice.

While Vorobyov acknowledges that strategic buyers across industries are "feeling the pain" of today's record deal prices, he believes M&A deals nonetheless remain more affordable than public markets as they are trading at even higher multiples.

Given the gap between public trading multiples and strategic deal valuations, Bain says companies should be able to capture return from buying and integrating assets at lower multiples.

The consultancy also sees a continuation of secular trends behind the business model transformations that continue to produce deals. This includes the trend of growing demand for new technological capabilities, as well as ESG as a growing factor in the M&A process and a source of value for buyers.

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