M&A expected to continue its robust growth streak


There are several key drivers for this boom in M&A activity, including low interest rates and high stock prices. The biggest driver is liquidity. This primarily comes from two sources: private equity “dry powder” or uninvested capital and record levels of cash on corporate balance sheets.

After a brief slow down during mid-2020, PE markets have been on fire. According to PitchBook, through the first three quarters of 2021, nearly 300 funds have raised a combined $238 billion, compared to $270 billion in all of 2020. 

PitchBook expected fundraising to continue at a rapid pace through the fourth quarter of 2021. From a “dry powder” perspective, PitchBook estimates total uninvested capital in the U.S. to be approximately $829 billion, which is up 8% compared to $766 billion at year-end 2020 and up approximately 12% as compared to year-end 2019.  

PE firms have announced more than $940 billion in buyouts in the U.S. in 2021, which is nearly 2.5 times the same period last year, according to Dealogic. Mega deals have been a big factor, as demonstrated through several completed deals in excess of $10 billion. Investors are seeking ways to capture increased returns, and PE is a great place to achieve superior returns compared to other alternatives.  

From a pure corporate or strategic buyer perspective, there are several ways to increase shareholder value, including investing in new property, plant, and equipment or paying dividends, but one way to really move the needle is to make strategic acquisitions. With a record level of cash on balance sheets in the trillions of dollars, strategic buyers are using this war chest to make strategic acquisitions.

This, combined with the liquidity in the PE markets, is creating a “perfect storm” environment for sellers.  As a result, it continues to be an excellent time to be a seller.

As we look forward into 2022, we expect this level of M&A activity to remain robust, although somewhat tempered. Liquidity in the market should remain strong from the PE overhang and cash on corporate balance sheets for the next 12 to 18 months, as well as banks’ willingness to support M&A activity. With inflation continuing to rise, we may see the Fed begin to raise interest rates, which could have a dampening effect, but probably won’t have any significant impact on the M&A markets until mid-to-late 2023. It’s a good time to be in the M&A business, whether you are a seller, buyer, or adviser. 

For the moment, and in the words of the ’80’s rock band the Cars, “Let the good times roll.”

Al Melchiorre is president and founder of MelCap Partners, LLC. Contact him at [email protected]



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