Tricia Glynn, a Managing Director at Advent International, spoke to Ansarada about her views on the deal environment and predictions for 2022 in the Americas.
It’s great to see more data and make sure you’re not timing a purchase at the wrong moment. Ultimately, I think it’s a sign of discipline that diligence processes are taking longer.Tricia Glynn, Managing Director, Advent International
Ansarada: M&A activity since the second half of 2020 has been very high—in fact, it has surpassed levels seen before the start of the pandemic. Do you think this level of deal activity will continue in 2022?
Tricia Glynn: Deal flow is certainly very robust right now, and that’s across sectors and global markets. There are a number of fundamental reasons for that. Financial markets are strong. Tax regime change is thought to be coming, at least in the US, exit markets are open and there’s a tremendous amount of dry powder that will keep M&A activity healthy for some time. If you look at those fundamental levers, the impact of tax regime changes as a catalyst for deal flow is likely to be short-term in nature.
Meanwhile, the cash chasing assets is not going anywhere. Deal flow will likely drop a bit if markets weaken. But fundamentally, the pandemic has accelerated innovation and change, and that leads to new business creation. The quality of companies we’re seeing right now is high. If we remain focused and follow our investment strategy, we believe we will continue to find great investments.
Ansarada: Are there any particular sectors of the economy or regions, be it in the Americas or elsewhere in the world, that you think will benefit from these M&A drivers in 2022?
Tricia Glynn: If you look at the places in which Advent is playing – scale growth markets – you absolutely see more deal flow in technology. You also see a massive number of deals where technology is influencing and accelerating other sectors. At Advent, we are seeing an increased number of opportunities where we can bring multiple sector teams together to work on a given deal.
Ansarada: The COVID-19 pandemic has been severely disruptive to sectors like leisure and travel. What do you expect will happen in these sectors, in terms of M&A? Will we see an increase in distressed asset M&A?
Tricia Glynn: We are believers in leisure and travel. For example, we originally invested in Dufry, the leading global travel retailer, in 2004, and after exiting the investment in 2013 we invested again during the pandemic in October 2020. We also have an investment in a North American hotel management business. There is a human need to connect and to see and to travel. And I don’t think that goes away. Many of these businesses are going to need growth capital and the markets will reopen. We’re quite bullish about the opportunities in the sector long term.
Ansarada: As we’ve discussed, PE activity has been at an all-time high, as are levels of dry powder. Do you expect this pace of buyout and fundraising activity to continue, or should we expect a cool-off?
Tricia Glynn: I have a mentor who would always get frustrated when people noted that markets were at all-time highs because his perspective was that they were by definition. The global economy is still growing and innovating, population is growing, productivity is growing, and so markets should keep going up. That’s not to say that there are no cycles. But fundamentally, the overall population is growing, and so is productivity. If you
think about private equity and venture capital – the alternative investments market – this industry is still not that old, it really took off in the ’80s and ’90s and has been growing since.
These levels of dry powder are being supported by more firms, more professionals, better strategy, more sophisticated tools at hand. The industry has the ability to put more and more capital to work and drive greater returns. Although the amount of funds raised keeps growing, I think that is supported by strong investment opportunities, so I would expect fundraising and buyout activity to remain stable or increase.
Ansarada: What about the other side of the coin? What challenges do you expect will most affect deal activity in 2022? We’ve seen protectionism and supply chain problems come up as issues weighing on the M&A market recently.
Tricia Glynn: There’s no doubt we’re still unwinding from the pandemic. And that’s not just in consumer behavior, but supply chains. Supply chain disruptions certainly have short-term inflationary impacts. However, it is important to make sure we understand why certain price
increases are happening and how likely they are to persist based on what the underlying root causes are. In a time with this much change, with markets performing in the bullish way that they are, sometimes people can overreact to data versus taking the time to think through all of the downstream implications.
Ansarada: We’ve heard from a number of dealmakers that due diligence processes are taking longer now than before the pandemic’s start. Why do you think this is the case?
Tricia Glynn: There are many factors causing due diligence to be longer right now. I’d say one of them is the number of opportunities in the market. Another reason is that we are trying to see a business over a longer period because the pandemic has been disruptive in many sub-industries. It’s great to see more data and make sure you’re not timing a purchase at the wrong moment. Ultimately, I think it’s a sign of discipline that diligence processes are taking longer.