Deal Strategies 2022 and Outlook

A brisk M&A pace as buyers and sellers calculate a new equation for value creation in deals.

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The established pattern of deals surging after an economic downturn should continue in 2022, with companies actively exploring M&A, divestitures and other transactions. But access to capital and an appetite for investment aren’t enough for deals to succeed. Acquirers still face high valuations for many assets, and they should understand new elements for unlocking meaningful value in deals and double down on achieving foundational value levers. Potential sellers should look beyond challenged businesses and proactively optimize portfolios to identify divestitures. And all parties in M&A should consider the “capabilities fit” in a transaction, as our research has found those deals deliver better returns.

The focus on value creation in 2022 and beyond is crucial in today’s environment of high multiples and investor expectations. Megadeals — transactions of at least $5 billion — understandably generate headlines, and 2021 saw the most US megadeal announcements ever, including large private equity (PE) buyouts. But just as notable is the significant increase in volume among “not-quite-mega” deals. Compared with a typical year of about 400 to 500 deals of $500 million to $5 billion in value, more than 800 such transactions were announced in 2021. Those numbers suggest that many companies are navigating the competition for assets in different ways, including through smaller and midsized transactions that could still deliver solid proceeds and ultimately be scaled for larger deals.

The paths to deal success

In an active M&A environment, value isn’t defined by the price of a transaction, but what you can unlock through a carefully considered value creation strategy. From optimizing portfolios to increasing resilience, companies can and should take aggressive action to improve their odds for deal success.

Next steps for dealmakers

As 2022 unfolds, corporate and private dealmakers face critical questions with M&A decisions. How do you determine what a company is worth — not only on paper when the deal is signed, but what it can deliver in the years after that? How does that influence what you can and should pay now? What are the realistic paths to value creation — those taken with previous acquisitions, and those you don’t yet fully understand? Answering those questions isn’t easy. Here are five key considerations for your deal strategies in the year

The bottom line Deal opportunities in 2022 abound, but the bar for achieving positive results has rarely been higher. Recent research found that the shareholder returns of more than half of acquiring companies underperformed their industry benchmark in the two years following completion of their last deal. To deliver value, deals should be deliberate acts that are part of your corporate strategy, not opportunistic grabs made possible simply by having a bunch of cash. What does that really mean? To gain a competitive edge in 2022, don’t assume value creation will naturally happen as a deal proceeds. More than half of buyers who told us their latest acquisition created significant value said they prioritized value creation from the start. That requires going beyond the topline costs and obvious synergies and focusing on the extra value creation levers in deals. As you explore your next deal, consider all elements of a comprehensive value creation plan — not a checklist, but a blueprint that includes strategic repositioning, revenue growth opportunities and changes to business and operating models, as well as a closer look at tax, the balance sheet and working capital. Investing in that effort well ahead of signing a deal can turn what would have been an underperforming deal into a transformative one.

Source: PWC Consulting

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