Turbulence always creates opportunities for winners and losers to emerge but, following a brief pause on activity at the outset of the pandemic in 2020, dealmaking rebounded strongly throughout 2021 and Bloomberg Business Week notes that global transactions are set to top $5 trillion by the end of the year.

These figures come despite economic volatility and the prospect of tougher competition regulation. Capital, appetite and opportunity have not been in short supply, and investors – particularly within private equity – have been keen to make up for lost time and put excess cash stockpiles to work. The low-interest rates environment is also a factor that has driven activity, alongside the abundance of capital flowing into the economy and chasing deals. This liquidity can also be explained in part by the availability of cheap debt. The coming together of these factors has created a strong pipeline of dealmaking activity and intense competition to get transactions done.

Tim Nye, head of corporate at Trowers commented: "Competition has been so fierce that pent-up demand has led to the amount of capital that can be put to work outweighing the number of deals available. The knock-on impact of this is that confidence has sky-rocketed and valuations have soared."

He adds: "These trends show no signs of abating, based on our conversations within the dealmaking community, and we, therefore, expect a continuation of strong M&A activity throughout 2022".

Dealing with change

The health, social and economic challenges created by COVID-19 meant that organisations of all shapes and sizes had to adjust their business plans and corporate growth strategies. For many, organic growth became more difficult and dealmaking, therefore, grew in importance as a primary option for achieving scale or entering new markets.

The ability to be nimble and agile during intense uncertainty and upheaval has been a key for success, and the best way to pivot into new areas over the past year has often been through merger or acquisition.

In certain sectors where disruption has led to huge changes in demand for services, consolidation and the birth of new market entrants have also provided dealmaking opportunities. Healthcare – and particularly HealthTech – has been an active sector as a result of spiking demand for services related both to the pandemic and to the maintenance of business-as-usual healthcare provision as backlogs grew in the wake of lockdown and other restrictions.

Elsewhere, Real Estate has been heavily impacted during 2020-2021 thanks to social restrictions inhibiting peoples’ ability to carry out a range of activities – from working in the office to visiting retail destinations and using leisure and hospitality venues. With smaller organisations struggling with this uncertainty, and the recent or impending withdrawal of government support schemes, some consolidation activity has occurred with larger entities buying up smaller rivals.

Other sub-sectors have been impacted differently, with industrial and logistics sites seeing spikes in demand thanks to the growing use of online retail and home deliveries as people were forced to spend more time in their own properties.

The ESG imperative

Towards the end of the year, COP26 took centre-stage in November, as world leaders gathered in Glasgow to discuss the changes and commitments that need to be made to achieve net-zero goals and turn the tide in the fight against climate change. The pandemic also helped to thrust ESG considerations into the spotlight, as the impact of an unprecedented global crisis was felt acutely in all corners of the world.

The role of corporates in driving the ESG agenda is vital. With governments, regulators, customers, employees, lenders, insurers and investors increasingly judging companies based on their ESG commitments, these themes are working their way onto the transactional agenda, too.

Just under two-thirds of respondents to a recent Trowers & Hamlins research survey identified ESG as either a significant dealmaking factor or an important factor ‘to a certain extent’, as pressure mounts for due diligence into potential acquisition targets to go deeper than ever before when analysing ESG issues. Large financial institutions from banks to insurers are factoring ESG risks into their pricing decisions, so an ability to demonstrate ESG credentials in those areas is becoming more and more important. With the direction of travel clear for all to see, savvy leaders will already be looking to get ahead of the curve on this to save themselves potential exposure later down the line.

Alison Chivers, corporate partner at Trowers explains: "ESG is an opportunity to set yourself apart from your competitors. If you’re not doing it, you risk finding it harder to get investment, financing or insurance. If you are taking the lead, you can expect to see the benefits.”

As we enter 2022, the embedding of recent and new regulation and guidance will only heighten the need for organisations across all sectors to get their ESG houses in order – this will cover a range of risk areas from working conditions, gender pay and executive remuneration reporting through to climate and sustainability policies. As data and disclosure in these areas become more sophisticated, potential transactions may be scuppered if the ESG numbers do not add up. This in particular is one strong trend from 2021 which we are expecting to become even more deeply ingrained in the minds of dealmaking decision-makers through 2022.