5 Hot Topics in M&A

Key Takeaways

• As the pandemic steadily winds down, the M&A sector is bouncing back.
• Activities in the tech space are intensifying as investors and buyers look to secure their share in the software, FinTech, and cybersecurity markets.
• Hundreds of SPACS (special purpose acquisition companies) are now exploring potential M&A deals in the automotive, aerospace and manufacturing sectors.
• The food and beverage (F&B) industry remains sluggish, but is gradually recovering, prompting experts to hope for a rebound within the next two years.

M&A Regains Lost Momentum

In 2020, mergers and acquisition activity took a huge hit due to the pandemic and the complex trade relationship  between the U.S. and China. Deal flow slowed considerably as the entire global economy stalled.

This year, the gradual global recovery – driven by successful vaccination efforts and the easing of COVID-19 restrictions – have seen the space start to recover. 3Q21 in particular saw global M&As reaching unprecedented volume and activity, as investors and enterprises moved to shape their post-COVID future.

A study conducted by Refinitiv, a leading financial data software company, indicates that the accumulated value of pending and successful M&A deals in 2021 has already breached the $3.6T mark as of mid-year, more than the total in 2020. In addition, more than 35K deals have been announced in 2021, representing an increase of 24% over 2020. M&A activity is currently gaining momentum and will likely show a big rebound in 2022.

Looking ahead to next year: What will be the hot topics in M&A for 2022 that savvy investors will want to get up to speed with? 

1. Technology: A competitive scramble for global tech companies.

The increasing competition for tech companies is reaching a fever-pitch. There has been so much M&A activity in the tech space recently, and expert forecasts are largely positive. Mergers and acquisitions news indicate that private equity firms are especially keen on financial software providers. 

Forrester reports that investment in software companies in the US is expected to reach $30B by the end of 2021 (increasing from $19B in 2018).

Notable recent M&A deals in tech this year include Platinum Equity’s acquisition of Ingram Micro (supply chain tech); Symphony Technology Group's purchase of McAfee’s enterprise security business (cybersecurity); and Thoma Bravo's move to acquire ProofPoint (cybersecurity)

Current M&A movement in the tech sector is a far cry from 2Q20, when the number of tech acquisitions dropped to 754 from 967 in the previous quarter. Since then, M&A activity in the sector steadily increased to 1.02K in 3Q20 and 1.2K in 4Q20.

This trend looks set to continue well into 2022. Competition for tech acquisitions will intensify as PE firms explore opportunities and tech companies negotiate for premium deals.

2. Cybersecurity: More investors want a share of the market.

Cybersecurity is a subsegment that has gained an important place in the tech space. Into 2022, cybersecurity will continue to be one of the hot topics in M&A. The growing sophistication of cybersecurity threats is putting many organizations at risk, especially as businesses migrate to the cloud and adopt remote workplace models with employees using their own devices for work. This year alone, ransomware attacks have increased by an alarming 148% compared to 2020.

The global cybersecurity market size is currently valued at $217.9B and is projected to grow to almost $240 next year. It's a growing market and investors want to cash in on the expanding opportunities here.

In 1H21 alone, VCs provided $11.5B in funding for cybersecurity startups.This figure reflected a separate report, showing cybersecurity startups raising $9.9B globally in the first six months of 2021. That's already 96% of the total funding raised in 2020.

According to Forbes, the majority of investments are focused in the following categories: data security, risk and compliance, threat intelligence, and incident response.

3. Traditional: Deal-making central to manufacturing and automotive recovery

The manufacturing and automobile sectors were among the industries hardest hit by the pandemic. As they look to recover strongly now and through 2022, many companies will be looking to consolidate.

According to PwC, approximately 400 SPACs (special purpose acquisition companies) might be actively seeking an acquisition target in the automotive, aerospace and manufacturing sectors via M&A during 2H21 and into 2022. This development has been one of the hot topics in M&A recently.

M&A transactions in the industrial manufacturing and automotive industry sectors are likely designed to accelerate digital transformation and are likely to command a premium. These include solutions that enhance operational efficiency through automation, or that enable companies to leverage low-touch, digital go-to-market channels.

4. Fintech: An acquisition spree in the PayTech sector

The payment technology space has been ripe for major M&A deals in 2021, and this will likely continue in 2022. Emerging payment trends, boosted by eCommerce, the need for contactless payment, and the adoption of new special finance methods (e.g., “Buy Now, Pay Later”), will drive PayTech deals.

Recent M&As in PayTech include Thoma Bravo’s purchase of financial software provider Calypso Technology at $3.75B. Other notable acquisitions include Deluxe Corp’s purchase of First American Payment Systems and Bank of America's purchase of Axia Technologies.

The rise of cryptocurrency and omnichannel payment platforms provided opportunities for new players to enter the payment market, giving consumers more payment options. We can expect M&A deals in PayTech to continue at a torrid pace through 2022.

5. Consumer: The food and beverage (F&B) sector looks to remain sluggish

At the start of the pandemic, M&A deals in the F&B sector plummeted. By the summer of 2021, the numbers remained sluggishly low. 

Savvy players in the F&B industry regard 2021 as a recovery period. According to Meridian Capital, companies have focused on intensifying adoption and implementation of transformational technologies.

These innovations are positive – however, many top U.S. food service executives believe that a 2022 recovery is optimistic, with a 2024 recovery looking more likely.

Get in touch with the Finalis Insights Team to learn how Finalis can help you stay up-to-date with your industry.