October 09, 2022

Caution, Optimism, and Opportunity: M&A Outlook at the Tail End of 2022

By: Stephan Millard, Senior Director, Product Marketing

The end of 2022 is in sight, but not much else on the economic horizon is clear. A number of worrisome trends putting a damper on M&A activity, yet activity in many sectors remains strong. Datasite gathered a panel of industry leaders to find out what’s foremost in their minds during the uncertain final months of 2022.

Deal Activity Persists in the Face of Volatility

Moderator Elle Cathey, Senior Director of Product Marketing at Datasite, kicked off the conversation by asking how much impact the upcoming US midterms will impact M&A. While a substantial number of audience members predicted a moderate impact, the speakers expected little change. 

“The presidential administration has more of an impact on M&A,” explained Justin Gans of Monument Capital Partners. He pointed to the Biden White House’s antitrust focus as an example. If anything, Gans said, Republican gains in the midterms might reduce the likelihood of federal intervention in M&A.

Of course, the elections are far from the only question mark hanging over the near future. But the numbers from Datasite’s platform suggest that there’s still a healthy amount of activity in the global pipeline. Cathay asked the panelists what they’re seeing within their sectors.

Ryan Sefidfard, who heads M&A for the Bay Area tech company Rambus, said that his firm still sees lots of opportunity ahead. Some of those openings are due to the recent drop in valuations, which is making many companies more willing to discuss acquisitions or carve-outs.

Rocky Cho, VP of Corporate Development for the enterprise tech company NCR, said his company’s pipeline has been less robust. However, he noted, that’s freed up resources to focus on deals that are smaller and less flashy but still important.

What will all this mean for the final quarter of 2022? Audience predictions tilted slightly toward a decrease in M&A activity, but the panelists weren’t so sure.

“Traditionally speaking, our fourth quarter is when the sprint to the end of the year happens, when everyone tries to close out those M&A deals,” said Abby Roberts, the Senior Director of Datasite Insights. She expects a busy Q4. Sefidfard agreed, citing the significant amount of dry powder remaining in the hands of both private equity and strategic firms.

Tech Remains Dominant

Even after all the turbulence of the past few years, TMT is still the largest piece of the global M&A pie. The recent numbers from our Datasite Forecaster report show no signs that this is changing. Cathey asked the panelists why they think this market has proved so resilient.

“One of the important factors that has contributed to that resilience is actually the pandemic,” said David Strauss of Broadband Success Partners. “It really accelerated demand by perhaps as much as five years or greater.”

The other panelists agreed, emphasizing that tech and innovation are now central to business strategy regardless of industry.

Cho noted that NCR was originally a hardware business but now is mostly focused on services. Meanwhile, companies like McDonald's are making huge acquisitions in spaces like AI. The range of possible buyers for tech companies is only expanding. 

Best Practices for a Turbulent Market

The discussion also looked at how dealmakers can ensure they make the right calls amid the present uncertain environment.

Sefidfard emphasized the need to remain disciplined throughout the process, keeping a strategic view and being willing to turn down opportunities when they don’t fit. He noted that his own team has implemented a scoring system for targets to help tamp down the impact of personal biases. Strauss agreed, saying that when times are chaotic, it’s more important than ever to focus on the fundamentals.

Cho added that his team is making a point of proactively contacting potential targets, even ones that aren’t necessarily looking to sell now. After all, lots of businesses in the tech world may be closer than they realize to the end of their runways.

Big-Picture Outlook, Concerns, and Strategies

What should be foremost in dealmakers’ minds given the unclear future?

Sefidfard noted that the headlines can be daunting but advised looking at the market through a long-term lens. “Our heads are down, we’re focused on organic execution, and we’re being cautiously aggressive just as we were during the pandemic,” he said.

Cho suggested that the overall health of the economy is the most important thing to watch - and that in the meantime, companies should be making sure their own houses are in order.

Cathey asked each speaker to give a one-word summary of what’s foremost in their thoughts regarding M&A right now. Unsurprisingly, the answers varied a lot.

For Strauss, the word was Growth. For Gans, it was Diligence. Cho said Recession, while Sefidfard said Cautiously Aggressive. And Roberts summed it all up as Foggy.

That final word may be the most understandable, considering how many unknowns remain about the months ahead. But dealmakers shouldn’t lose sight of the vigorous activity and numerous opportunities still at play in the M&A market.

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