Since the beginning of the war in Ukraine, we’ve seen parties delaying and pulling deals. Top deal lawyers are also predicting there may be somewhat of a slowdown in M&A activity this year from last year’s historic level due to the compounding of various headwinds.
Despite these developments, M&A overall returned pretty solid results in the first quarter of 2022. One exception—and a trend to keep an eye on—is cross–border deals, which saw the steepest Q4–to–Q1 drop in volume in at least 15 years.
A Farther Distance to Fall
A total of 9,558 M&A transactions, with an aggregate value of $712.4 billion, were announced in the first quarter. These deals involved the acquisition of a controlling stake in the entity or assets to be acquired (“controlling-stake deals”), and are currently pending or have reached completion.
This volume represents a near–$300 billion drop from the fourth quarter’s $1 trillion, and falls well short of the record–breaking first–quarter volume of $854.7 billion seen last year. Despite this drop, the deal volume for first–quarter 2022 actually stacks up solidly against first quarters in recent history. First–quarter deal volumes in both 2018 and 2019 also fell within the $700 billion–to–$800 billion range.
The fall was a bit more precipitous for cross–border deals. Last quarter’s cross–border deal volume reached $238.1 billion, less than half of the prior quarter’s volume, and roughly two–thirds of Q1 2021’s volume.
Q4–to–Q1 Percentage Changes
There’s a strong tendency for first-quarter M&A volume to be lower than the quarter directly preceding it; fourth quarters tend to be very busy in the M&A market. To illustrate that point, only four times in the past 15 years has a first quarter’s M&A volume surpassed the preceding quarter’s volume. It’s one of the reasons that to understand first quarter performance, we typically compare it to past first quarters and not to the prior quarter.
However, given last year’s historic level of M&A activity, particularly in the fourth quarter, it may be helpful to look at the percentage changes from fourth-quarter volume to first-quarter volume to get a sense how “normal” last quarter’s Q4–to–Q1 drop was. Last year’s fourth quarter saw the highest quarterly deal count on record for controlling–stake deals, and was only the fourth individual quarter on record to break the $1 trillion mark for such deals.
For all controlling–stake deals at the outset of the M&A boom cycle that started in the second half of 2020, the roughly 14% decrease in overall deal volume from Q4 2020 to Q1 2021 was relatively low compared to other past Q4–to–Q1 percentage changes. In contrast, the 29% drop in volume from Q4 2021 to Q1 2022 was the highest percentage change in volume seen since the change from Q4 2016 to Q1 2017.
As for cross-border deals, on the other hand, their greater–than–50% fall in aggregate volume was steeper, marking the largest Q4–to–Q1 percentage drop in at least the past 15 years. Similar big drops of greater than 40% (but less than 50%) have been seen in some past Q1s during that period (in 2020, 2013, 2009 and 2008). So while 2022’s start is not entirely unprecedented, it’s certainly notable. (From Q4 2020 to Q1 2021, cross–border volume fell by only about 10%.)
Mega Deal Impacts
The lower overall deal volume in the first quarter can be attributed in part to fewer mega deals.
Nine mega deals valued at $10 billion or greater were announced in Q1 2022, down from the 11 mega deals announced in Q4 of 2021. By way of comparison, there were 10 mega deals announced in Q1 of 2021. Again, cross–border mega deals seem to be hit the hardest. In Q1 2022, two cross-border mega deals were announced, marking the lowest quarterly cross-border mega deal count since the effects of the pandemic hit markets in the second quarter of 2020.
Looking back at March of 2021—which amassed half of Q1 2021’s mega deals—that month included the announcement of five mega deals, three of which were cross–border. In March of 2022, no cross–border mega deals were announced; the only two announced mega deals were non–cross border deals.
The sole mega deal involving a European party in Q1 was Blackstone Inc.‘s Feb. 15th announcement of its acquisition of Dutch logistics real estate company Mileway BV. The announcement of the Mileway acquisition took place about a week before Russia’s invasion of Ukraine.
Of the remaining eight mega deals announced in Q1, all involved a North American target. As in past quarters, North American targets accounted for a large proportion of mega deals.
Noticeably absent from mega deal activity, however, was the rest of the globe. With North American targets accounting for all mega deals following the start of the conflict in Ukraine, this stagnation could signal that global deal parties are grappling with the initial shocks of war.
Cross–Border M&A’s Global Share
Cross–border M&A is a significant driver of overall M&A volume. When looking at controlling–stake M&A on a quarterly basis, cross–border deal volume has typically constituted about or above 40% of all global M&A volume. Last quarter’s cross–border deal volume—although the lowest since the second quarter of 2020—represented one–third of all controlling–stake M&A volume. To the extent cross–border deal volume continues to fall, global M&A totals will also likely be visibly impacted.
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