Could M&As defy Omicron uncertainty to hit all time high in 2022?


Over the past two weeks global markets have struggled in the face of the new Omicron variant, however, after two days of strong trading the FTSE100 is now back to the level seen just before the variant announcement, as optimism for recovery regains momentum. This comes as last month the global market for mergers and acquisitions hit an all-time high with a record $5 trillion in deals – 40% ahead of the whole of 2020, demonstrating that given the past two years of turbulence and uncertainty, the global economy is well and truly on its way to bouncing back.

Coming in third after the US and China respectively, the UK has been a significant player when it comes to M&As, with their companies having been the target for 7% of all global deals. The combined effects of Brexit and the pandemic have meant that buyout groups, flush with cash from low interest rates and hungry investors, have started targeting undervalued British firms – with research from Schroders showing that on average, UK companies are undervalued by around 30%.

This high demand and optimism looks set to continue well into 2022, with a new survey indicating that 90% of dealmakers expect stronger activity over the next 12 months, with the Tech and Telecoms sectors being some of the most sought-after industries – and accounting for one fifth of global M&A investment, according to figures.

The volume of deals has been noticed by professional service and accounting firms, with mid-sized firms taking on many of these large clients, and offering more tailored solutions to clients. As such, this is an opportunity for these firms to further monopolise and aid both buyers and sellers in the private sector to ensure neither party falls flat at a time of rapid deals, and surges in cashflow and financial backing driving deals quicker than ever before.

These firms are standing as a flexible resource keeping the deals market afloat at key times when the difference between a deal going through and it falling through can be a matter of minutes. The end of the Big Four’s near monopoly could also open the door for smaller, more nimble firms to further capitalise, and the increasing demand for consultancy around deals means that those looking for a more tailored service will in many cases look to smaller, more agile providers.

Chris Biggs, Partner at Theta Global Advisors – an accounting and consultancy disruptor – comments:

“I can see 2022 being a historic year for M&As and other kinds of deals as a large amount of uncertainty melts away that has lingered from Covid and Brexit. It is a perfect storm of returning optimism, loosening restrictions and undervalued firms. We have been instructed on a number of deals in the past few weeks and this looks set to carry on for the foreseeable, something that will be a boost to firms and especially those below the Big Four.

“Firms such as ours have seen tremendous demand to supply a kind of resource which is both flexible and efficient in its delivery without the significant costs of the Big 4. Companies are beginning to understand the scale of opportunities that exist in the M&A sector and this will require a sharp increase in the available resource in getting these deals done in time.

“The UK has set up a plan for recovery that is extremely investment-friendly post-Covid. Despite the initial impact of Brexit with deals and investments moving abroad, we are seeing the financial services sector adapt, with mid-sized firms offering agile, diverse services to their clients with less risks for conflicts of interest we have seen previously.

“As businesses look to avoid actual or perceived conflicts of interest, I can see a big shift towards smaller firms. It is easy to get lost in a sea of big clients if your firm is not a key account, but when working with smaller accountancy practices your needs are prioritised no matter how big you are. This has come into increased focus throughout the pandemic and will continue long beyond it.”

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