Global M&A activity is set to rise over the next 12 months – but a reduction in multiples could mean the attractiveness of trade sales as an exit option for private equity remain subdued.
Datasite surveyed 543 dealmakers of director level and above involved in corporate development, investment banking, private equity and law across the US, UK, Australia, France and Germany.
It said more than two-thirds of respondents said they expect global deal volume to rise in the next 12 months, with most (41%) expecting to see the biggest increase in transformational acquisitions or mergers, followed by debt financing (37%) and secondary buyouts (34%).
About four in five dealmakers are pricing at least a 5% to 7% increase in inflation, if not higher, into their financial valuation models for the rest of the year, it added.
Datasite CEO Rusty Wiley said, “Despite geopolitical uncertainties and overall market volatility, global deal activity itself is still strong.
“Activity on our platform, which facilitates deals at their inception, rather than announced, has increased by double digits in the first half of the year, with many organizations still investing in technology to ensure their competitiveness.
“However, when it comes to valuations, dealmakers will likely adjust multiples downward so the net result may be lower valuations overall in the second half of the year.”
When asked how inflation is expected to impact M&A deal flow, 46% of dealmakers said they expect a greater component of deals to be financed via equity, with an additional 34% predicting more straight cash deals.
Uncertain valuations, inflation and the Russia-Ukraine war are affecting other aspects of dealmaking, including deal size and the timing of completion, the survey shows.
Dealmakers said the war (36%), as well as inflation and the cost of capital (15%), are factors likely to prevent a deal from closing before the end of 2022.
Qualitative feedback from dealmakers also points to uncertainty around valuations as another factor having a significant impact on M&A overall, including pausing larger acquisitions and merger processes, especially among corporate and private equity dealmakers.
Wiley said, “The median length of time for a new deal, or asset sale or merger, to launch and close on our platform has increased by 5% year-over-year so far this year, while deal preparation time is also rising, up 31%, for the same time frame.
“This means many dealmakers are ‘ready to go’ but haven’t launched their projects just yet. We are also seeing the rate of questions and answers between potential buyers and sellers climb, as dealmakers focus on uncovering anything that could lead to post-value deal destruction.”
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