What’s Next for M&A?

2021 M&A Performance:

• Global M&A activity shattered records in 2021 across all regions, industries, and transaction sizes.
• Activity demonstrated remarkable breadth and consistency throughout the year, lacking the typical quarterly pauses seen in previous cycles.
• Goldman Sachs announced approximately 400 transactions greater than $500 million globally in 2021.

Boardroom Sentiment and Strategy:

• Despite concerns over Omicron, inflation, and geopolitical instability, boards are prioritizing long-term strategic positioning (5–50 year horizons) over short-term earnings accretion or leverage metrics.
• Key strategic drivers for dealmaking include technology integration (offensive/defensive), ESG portfolio positioning, and renewed focus on capital allocation with heightened scrutiny on core versus non-core assets.
• Boards are viewing current risks as manageable while capitalizing on a "consolidating world" to position themselves as winners.

Private Equity Activity:

• The definition of private equity has broadened to include sovereign funds and family offices in direct controlling investments, not just LP roles.
• Private equity now accounts for roughly 35% of the M&A market, driven by high returns generating more capital and aggressive execution velocity.
• Large fund sizes are enabling larger equity checks, facilitating a resurgence of "mega LBO" transactions.
• Increased openness to partnership structures (e.g., rollover transactions) is emerging, particularly among European clients.

Market Valuations and Deal Structuring:

• High equity valuations are encouraging the use of stock in transactions, even as debt costs remain near historic lows.
• Markets are rewarding strategic repositioning over strict short-term return on invested capital (ROIC) metrics, supporting continued activity despite high multiples.
• Investors generally focus on whether a deal is strategic rather than scrutinizing specific multiple valuations at announcement.

Activism Trends:

• Activist investor activity has surged to levels exceeding pre-pandemic (2019) benchmarks, with a specific focus on large-cap companies.
• A primary theme is identifying valuation gaps between share price and intrinsic value, often proposing portfolio changes (spin-offs, divestitures) to close them.
• Europe has seen an extraordinary increase in activity, with one mega-cap campaign launched every two weeks post-summer.

Cross-Border and Digital Dynamics:

• Cross-border activity, previously subdued, surged post-summer, particularly following the loosening of U.S. travel restrictions in November.
• Digital transformation has compressed transaction timelines; for example, EV electrification roadmaps accelerated from 20–30 years to 5 years or less.
• Deal execution remains heavily reliant on digital platforms and virtual due diligence, a shift expected to persist long-term.

Risk Factors and Outlook:

• Primary Risks: The growth outlook (potentially impacted by Omicron), equity market volatility, and increasing global regulatory scrutiny.
• Secondary Risks: Global instability, political polarization, and domestic unrest are monitored as they impact CEO confidence, the primary driver of M&A.
• Forward-Looking Statement (2022): Goldman Sachs maintains a "cautiously optimistic" outlook, predicting 2022 deal volumes will remain on par with or potentially exceed 2021 levels due to strong foundational drivers (capital availability, board confidence, and financing conditions).
• Interest rate expectations, including potential Fed hikes, are viewed as a factor but not a primary deterrent, as current rates remain historically low and risk perception drives debt pricing more than base rates.