Pent-up M&A activity – technology, health care, and the real estate industry are still hot

Despite the challenges and headwinds presented in the past few years, H1 of 2022 closed out with steady and persistent growth for Global Mergers & Acquisitions (M&A). We could argue that the space is just heating up. A recent report from EY shared that while Global M&A is down by 27% year-over-year, the space has grown 35% compared to the averages of the previous cycle. As one of the year’s most resilient sectors, global M&A is on a trajectory to continue that growth into 2023.

Thanks to large pools of capital-seeking deals, PE firms have been increasingly active in M&A–real estate M&A, specifically. And, as deal competition within the real estate space continues to accelerate, so has deal volume–by 59 percent. Since 2021, the market has more than doubled from $45.8 billion in H1 2021 to $95.8 billion in H1 2022

But real estate isn’t the only industry on the up. Keep reading as we share key findings and predictions for the future of real estate M&A, along with the critical role technology and healthcare play in the future of the M&A space. 

Spotlight: Real Estate M&A 

Much of the boom we’re seeing in real estate M&A stems from the pressure placed on VCs to deploy a record level of dry powder. Factors, such as highly liquid private markets that facilitate fast exit opportunities, have continued to drive several REIT privatizations. With expectations that rent will continue to rise, and demand for rental housing at an all-time high, real estate assets, such as multifamily properties, remain attractive for investors worried about rising inflation. And the space shows no signs of slowing down.

For example, Blackstone recently announced its all-cash, $7.6 billion acquisition of PS Business Parks, a REIT that acquires, develops, owns and operates commercial properties, predominantly multi-tenant industrial, industrial-flex and low-rise suburban office space. The price represented a premium of approximately 42 percent to the target’s stock, and the agreement had a break fee of $29 million and a reverse break fee of $58 million. Lone Star Funds acquired Home Properties, an apartment REIT, for $4.4 billion. The deal represented a 9 percent premium for the target’s stock and had a $150 million break fee and a reverse break fee of $300 million.

Despite expectations of a downturn, these deals indicate a strong signal not only for the ability of the real estate M&A space to defy the odds stacked against them but also for growth in deal activity across the entire sector. 

Friend-Shoring Could Derail M&As Resilient Outlook 

While real estate remains hot, PEs are continuing to pursue growth and value-driven deals, and there is still a strong appetite for cross-border deals on a global scale. As a result, Executives can be a bit more selective in who they do deals with and can ‘friend-shore’ their operations to pursue transactions closer to home before having to execute a truly global approach.  

In this close-to-home approach, the centrality of technology in the M&A market becomes an essential component. Accounting for nearly a third of total deal activity, the growing demand for data security, enterprise software, and cloud-based services has been a key driver of M&A for nearly two years. 

As consumer businesses get further exposed to key issues in the broader economy at scale (particularly regarding inflation), healthcare companies will have significant funds at hand to deploy. Pair that with the rapid decline in biotech valuations, and the coming months could prove fruitful for the life sciences and consumer sectors, which are expected to accelerate in deal activity.  

Keep Pace with Trends in M&A

While global M&A has proven to be resilient despite recent unforeseen challenges (such as lockdown and a rocky economy), it’s uncertain whether it will be able to sustain any future shocks. 

But, until then, M&A is continuing apace. To keep up with the latest trends and developments and the role of technology in the space, subscribe to the Altvia newsletter.