2022 Predictions

Liz Claydon

Liz Claydon, Head of UK Deal Advisory at KPMG, discusses upcoming M&A trends in EMEA with Ansarada.

Liz Claydon, KPMG logo
Our point of view is that pretty much every company is trying to move into the technology world in some way, shape or form.
Liz Claydon, Head of UK Deal Advisory, KPMG

Ansarada: From your perspective on the deal advisory side, do you expect M&A activity to stay strong through 2022?

Liz Claydon: We tend to take an 18-month view – I don’t think it’s wise to look much further in the world we live in today. I think, as has been well commentated, we will continue to see a strong M&A market throughout 2022 and potentially beyond. Cash reserves and investment capital are plentiful, so signs are generally positive.

I lead our UK business, but I also sit on our global leadership team, and I can see exactly the same dynamics playing across all of our key regions. The M&A boom is truly a global phenomenon, not solely driven out of the US, UK or Europe, for example.

Ansarada: Are there any regions or sectors that you think will be especially active in terms of M&A in 2022?

Liz Claydon: Almost all deals these days have a technology agenda – across all of the sectors. We are seeing this played out in sectors such as consumer retail – particularly targeting companies with a direct-to-consumer element. The Mindful Chef deal with Nestlé at the end of last year is a great example of this trend.

Activity within the energy sector is also strong, driven by the energy transition and the Net Zero agenda. We’re seeing a lot of activity across both large corporates and disruptors within the industry.

We’re also witnessing clients increasingly wanting to understand the ESG implications of a transaction, both on the buy and sell-side. This has resulted in due diligence requests moving beyond the traditional financial, commercial and/or operational elements to include environmental, social and governance issues. Companies with a clearly articulated green agenda will become increasingly in demand as we move into 2022 and beyond.

Ansarada: The COVID pandemic has been severely disruptive to sectors such as leisure and travel. What do you expect will happen in these sectors, in terms of M&A?

Liz Claydon: I do think that sectors that were particularly hit hard by the pandemic, and were reliant on furlough and additional financial support, will bounce
back. M&A will be an important part in this process.

I think, generally, we’re seeing a pickup in investment in sectors such as retail and leisure. As many businesses continue to reopen, I do think we’ll see more dealmaking activity. You may have seen the announcement of the acquisition of William Hill’s European assets by 888 within the gambling sector – another industry that had been hit pretty bad through the crisis. We’ve also seen an uptick in the restaurant sector. So, in some ways, we’re seeing M&A being used as a defensive strategy – this looks set to continue.

Ansarada: A key topic of conversation for dealmakers is the digital transformation angle. From your perspective, what sort of companies are acquirers targeting on the digital side?

Liz Claydon: Our point of view is that pretty much every company is trying to move into the technology world in some way, shape or form. We’re seeing a lot of activity in the fintech space, as well as within the IP section of the market. Life science activity is often driven by the need to acquire technology to support the R&D process. We’ve seen this through the vaccine crisis as companies have applied new technology to discover new drugs. Often it is start-up-type businesses that have come up with ideas that the larger companies are interested in. 

Data and analytics are incredibly important drivers of activity. If you step back and think about what companies are constantly striving for, it’s insights into how they’re doing as a business and importantly, how their competitors are doing. Companies that have gotten smarter with data and analytics are those that, in many cases, are growing faster.

Ansarada: When you’re advising companies, do they appear fully aware of the sorts of challenges that are ahead of them? What are you reminding them to stay aware of, as far as incoming challenges or problems that may arise in 2022?

Liz Claydon: I think we all have to be mindful that COVID is something that is not going to go away any time soon. We’ve got to learn to live with that and the potential for other variants to spread. What has been proven in the early stages of the pandemic is that once people got comfortable with their new environment, deals can actually happen quicker virtually. We have seen some sizable deals take place with nobody meeting face-to-face. It definitely surprised me, particularly within the private equity community who are looking to interact with and ultimately back high-quality management teams. They need to understand the level of competence within that management team. It is a lot harder to do virtually than meeting people face-to-face in a social environment.

It is the people, the management teams, that make businesses succeed. As a result, we are seeing an increased focus on the people aspects of deals, and it’s something we’re investing in more as a business. The cultural side of integrations are obviously critical, rather than it being just about the numbers adding up or the marketplace being strong.

Ansarada: On the private equity side, companies are raising record amounts of capital. Is there a risk in holding so much capital? Do you think there’ll be a market correction any time soon?

Liz Claydon: To cut to the chase, I think it would take a substantial shock, some sort of interest rate change, that we’re not expecting to happen at the moment. We have clearly seen a spike in multiples paid to secure assets and a higher number of preemptive bids, particularly in hot sectors such as software, tech and healthcare. Our consensus view as a firm is that we don’t see any expectation of a reversal in the near-term, given the supply and demand in the market.

However, at some point, I would expect multiples to start to level off – particularly if we start to see interest rates moving upwards across Europe and the US in light of some of the inflationary pressures we’re starting to see.

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