Global M&As Crushed: Inflation, Regulation, War

Worldwide mergers and acquisitions (M&As) have been crushed under the weight of escalating inflation, tightening regulations and the ongoing war in Ukraine, with dealmaking down 23% compared to last year, Financial Times reported on Friday (April 1).

In the first quarter of this year, $1 trillion in deals were signed, with Microsoft’s $75 billion acquisition bid for Activision Blizzard in January being the largest transaction so far. The second-largest deal of 2022 is the 21 billion purchase by Prologis of Mileaway, Blackstones European warehouses. Prologis owns the most warehouses in the world.

See also: Microsoft to Buy Activision Blizzard for $75B, CEO Expected to Step Down

All continents have seen a reduction in the number of M&A deals, according to Refinitiv data. The drop in M&A activity follows a two-year period of record dealmaking that happened in part due to stimulus injected into economies during the worldwide COVID-19 pandemic.

Last years M&A deals totaled $5.63 trillion, blowing out the $4.42 trillion record set in 2007, PYMNTS reported. The volume of M&A deals were up 63 percent by Dec. 16, 2021. Deals in the U.S. hit $2.61 trillion, Europe, $1.26 trillion, and Asia Pacific, $1.27 trillion, according to Dealogic data.

Read more: Worldwide M&A Projects Shatter Records with $5T in Deals

Private equity groups have had a strong start to 2022, with money to burn after building cash reserves during the pandemic. Buyout groups invested $288 billion in deals during the first quarter of 2022, a 17% increase over the same period in 2021, according to the report.

Avinash Mehrotra, global head of activism and shareholder advisory at Goldman Sachs, told FT that despite everything rising inflation, contracting GDP growth, geopolitical tensions CEOs and their boards are still in growth mode.

Related: SPACs Turn to Alternative Funding as Investor Cash Dries Up

Not only has there been a lack of new deals being formed, there has also been an uptick in the number of canceled transactions. In the first quarter of last year, $215 billion in deals were canceled, the most since 2018. Close to 75% of abandoned deals involved a European target, a reflection of tightened regulations by the U.K. and European competition authorities, FT reported.

Deals involving special purpose acquisition companies (SPACs) were also killed at a higher level as legislators turned a critical eye on the mergers as deals underperformed. SPAC deals have comprised 3% of total global dealmaking this year, compared with 17% last year. Initial public offerings with SPACs dropped 78% in 2022 so far.