What’s Next for M&A

Episode Summary

Executive Summary: Goldman Sachs M&A co-heads Mark Sorrell and Stefan Feldgoist describe 2021 as a record-breaking, unusually broad and steady year for dealmaking across regions, sectors, and transaction types. Despite inflation, volatility, and COVID uncertainty, boards remain strategically focused, private equity is highly active, and cross-border activity is rebounding. They are cautiously optimistic that 2022 can match or exceed 2021 levels.

Main Topics: Record-breaking breadth and consistency of 2021 M&A (Priority: 5/5): Deal activity surged across all regions, sectors, deal sizes, and transaction types, with unusually persistent momentum throughout the year rather than intermittent bursts. Boardroom priorities amid inflation and uncertainty (Priority: 5/5): Boards are looking through near-term macro risks and focusing on long-term strategic positioning, using M&A to win over a 5-50 year horizon rather than optimize day-one earnings. Drivers of deal volume: technology, ESG, and capital allocation (Priority: 5/5): The main catalysts for transactions were digital transformation, ESG positioning, and sharper scrutiny of core versus non-core assets and capital deployment. Private equity expansion and mega-LBO comeback (Priority: 4/5): Private equity involvement broadened and deepened, supported by strong fundraising, high returns, and more partnership structures with corporates, enabling larger buyouts. High valuations, low rates, and transaction structuring (Priority: 4/5): Elevated equity multiples encouraged stock usage in deals, while historically low debt costs still supported financing and did not materially dampen activity. Cross-border recovery and travel constraints easing (Priority: 4/5): Cross-border M&A, especially transatlantic deals, improved sharply after summer and after U.S. travel restrictions loosened, though renewed restrictions could slow it again. Risks to 2022 M&A: growth, volatility, regulation, and confidence (Priority: 5/5): The speakers highlight pandemic-driven growth risk, market volatility, regulatory scrutiny, and geopolitical/political instability as the main threats to CEO confidence and deal pace.

Key Arguments: M&A activity in 2021 was unusually broad-based, with strength in every region, industry, transaction size, and deal type. The year’s defining feature was consistency: unlike typical years, momentum persisted through macro and geopolitical blips. Boards are prioritizing long-term strategic winners over short-term financial optics such as immediate accretion or leverage. Technology, ESG, and portfolio focus are recurring themes pushing companies to transact and reposition. Private equity activity is elevated because strong returns have attracted more capital and firms need to put it to work. Mega buyouts are returning because fund sizes have increased and corporates are more open to partnership, rollover, and minority structures. High equity valuations can actually facilitate deals by making stock a more attractive currency. Low interest rates keep debt financing attractive, so higher rates may affect some deals but are unlikely to stop the market. Cross-border M&A recovered materially after travel restrictions eased, especially for U.S.-Europe transactions. Digital transformation has accelerated execution speed and changed how M&A processes are staffed and managed. The biggest forward risks are slower growth, market volatility, regulatory scrutiny, and broad confidence shocks from geopolitical or political instability. Despite risks, new mandate levels and pipeline indicators suggest 2022 should remain highly active.

Data Points: Year discussed: 2021 - The transcript reviews M&A activity heading into the end of 2021. Goldman Sachs year-to-date announced transactions over $500 million: ~400 - Stefan cites Goldman Sachs’ activity heading into 2022. Private equity involvement in M&A market: mid-30s % - Stefan says private equity now accounts for roughly the mid-30s percentage of the broader M&A market. Pandemic-era activism comparison: Above pre-pandemic levels - Stefan says activism has risen above 2019 levels by the time of the episode. European mega-cap activist campaigns: One campaign every two weeks - Stefan describes post-summer activity in Europe. Travel restriction easing in the U.S.: November 2021 - Mark says loosening U.S. travel restrictions in November helped revive transatlantic cross-border M&A. Podcast recording date: Friday, December 17, 2021 - Disclosed at the end of the episode.

Pivotal Quotes: "we really have had a year of real consistency and real momentum" — Mark Sorrell: Describing the unusual persistence and breadth of M&A activity throughout 2021 "what do I need to do to be the winner in 5, 10, 20, 50 years?" — Stefan Feldgoist: Explaining how boards are thinking about strategic M&A despite inflation and uncertainty "It's not about did you pay one or two multiple turns too high? It's are you going to be, again, the long term winner?" — Stefan Feldgoist: Discussing how high valuations are affecting deal logic and investor reactions

Implications: The M&A market enters 2022 with strong momentum, deep capital, and strategic urgency. Near-term risks may slow some deals, but boards and PE firms appear willing to transact through uncertainty if the long-term case is compelling.