Providers of virtual data rooms (VDRs) believe that the global M&A boom in 2021 will continue through the first half of 2022, based on early indicators of activity.
Dealmakers are setting up large numbers of data rooms this quarter, VDR providers said. This implies deals will move into due diligence early next year and a close in 1H22.
However, inflation could be one of the biggest deal breakers in 2022 after emerging as an issue in 2021, according to Datasite’s CEO Rusty Wiley. If inflation is here to stay, central banks could raise interest rates, which would impact record levels of liquidity. On the other hand, if inflation hits equity prices, it could generate more targets in sectors like tech, according to SS&C Intralinks’s Corporate Development & Global Partnerships Director Brian Hwang.
Global M&A hit record levels in 2021, with volume of USD 5.65tn, according to Dealogic data. The previous record of USD 4.55tn was set in 2007, just before the global financial crisis.
Datasite’s CEO Rusty Wiley
How has the volume of new VDRs on your platform progressed through the fourth quarter of the year?
We are about to close a record-breaking year for M&A. New global diligence projects on Datasite’s platform, which are deals at their inception rather than announced, continued to rise in 4Q21 compared to 4Q20, while new global projects for 2021 are up over 30% year-over-year. We expect to have our best year yet.
Given that it takes an average of six months to close a deal from opening a VDR, what do you think deal volumes will be like in the first half of 2022?
Given the high activity levels we are seeing on our platform, the first half of 2022 is on track to be a strong one. And we’re hearing this from dealmakers themselves. We recently surveyed 600 global dealmakers and 75% of them expect activity to increase or remain the same in the next 12 months, supported by a low interest rate environment and private equity cash piles.
If 2021 was all about transformational deals fuelled by organizations turning to technology and combining with other companies to ensure their competitiveness, dealmaking in 2022 is focused on organic growth potential. Transformational deals will no doubt continue in the new year, especially as companies seek to future-proof their businesses. Yet there will also be opportunities to invest in growth, including divesting non-performing businesses or acquiring new businesses that offer new products, services, or markets to fuel a company’s future growth. This may apply, especially, to deals in the consumer and industrial sectors, where we are already seeing rising activity. For example, year to date, new global industrial, transportation and defence projects on our platform are up 56% year over year.
Have you noticed any interesting trends recently?
Inflation impacted deals in 2021 and is expected to again be one of the biggest deal breakers in 2022. More than 70% of global dealmakers in our survey said inflation affected a deal they had worked on in 2021. In 2022, in addition to inflation, global dealmakers will also be focused on ESG risks, supply chain challenges and labour shortages sinking deals.
Given this, technology and tools to manage the M&A process will continue to be vital to dealmakers so that they can conduct complex due diligence activities to reach successful outcomes. Dealmakers’ reliance on technology and digital tools may also help them to spend more time with family, which they also cited as a top personal priority in 2022, ahead of career or job changes.
Further research from Datasite
VDR Insight is an initiative from DealTech, a regular feature that covers technology trends aimed at M&A professionals. If you would like to give us any feedback, please contact [email protected]