Deloitte strategist: 2021 was ‘huge’ year for M&As

Deloitte Partner in M&A and Restructuring and co-author of The Synergy Solution: How Companies Win the Mergers & Acquisitions Game, Mark Sirower joins Yahoo Finance Live to talk about the M&A trends in 2021, M&A relationship with markets, how rising interest rates affect M&As in the tech sector, the news surrounding AMC's stake in Hycroft Mining, and computer chip shortages.

Video Transcript

RACHELLE AKUFFO: Welcome back, everyone. So as we saw, 2021 was a banner year when it came to mergers and acquisitions. And that came on the heels of the lows that we saw during the pandemic. So let's check in with 2021 and what we can expect this year as well.

Brad Smith and I are joined by Mark Sirower, Deloitte's Partner in Mergers and Acquisitions and Restructuring. Thank you for joining us today. So first, I want to talk about your study, which showed a $5.9 trillion in M&A activity last year, up 64% on the previous year, which, as I mentioned, was weighed down by the pandemic. What made 2021 such a bumpy year? And how do the headwinds that you're seeing this year shape your outlook for 2022?

MARK SIROWER: It's a great question. So 2021 was huge. I think maybe the biggest news for us was to watch the growth in a number of large deals, deals over a billion in size. Those doubled in 2021. And 2021 was a 60% increase in the value of deals from the prior year. And even with the pandemic, it wasn't down that much. We've had a long string of very large M&A years since 2016.

For us, what's important is that we're starting to see what looks like a wave shape. You know, economists will say merger waves are periods of M&A activity, but for strategists, it's looking at the wave shape. And, you know, merger waves only happen for one or two reasons. One is either companies that hadn't been doing deals start doing them or companies that had been doing-- that had been acquisitive start doing more or bigger deals.

So this is the period of time where you see this injection of inexperience in the market at near all-time high market valuations where you're paying a premium over that. And these are very unique capital investment decisions. So looking forward, M&A markets don't like volatility. So that's the only thing that could get in the way of this. But, you know, if markets stay strong, we know that M&A is correlated with rising stock markets.

BRAD SMITH: When we think about the sectors that made the most acquisitions and had some of the largest fanfare and attention grabbing headlines around their acquisitions, tech stays in the spotlight. And so with that in mind, we do know that we're entering into a rising rate environment for tech. What does that signal about the potential for some of the existing M&A that we've already seen and the future of mergers and acquisitions within that sector?

MARK SIROWER: Well, we've seen a very active M&A across industry sectors, so not just tech. What we would say to acquirers who are looking at tech companies, is understand those market valuations. And many of those tech companies may be trading like acquisition candidates, so be very careful before you pay a 20% or 30% or 40% premium over those market valuations because they may have a lot of growth value already built into them.

RACHELLE AKUFFO: Now I want to talk about the deal that wasn't, this proposed deal between chip maker Nvidia and ARM semiconductor that fell through. But it did test that $40 billion ceiling for M&A in that space. What's your take on why it fell apart and perhaps any other deals in the chip space that you're watching?

MARK SIROWER: So I can't comment on specific deals. But I can just say that the most successful acquirers now are the ones who are the most prepared, the ones that know what they want, why they want them, and how they're going to create value with those-- that set of assets once they buy it.

BRAD SMITH: Perhaps you can talk about the strategic reasoning behind deal making. I mean, most notably, there was a head scratcher today between AMC and a silver mining company called Hycroft. And so with that in mind, are we set to see even more of this deal-making that takes place that is either positioning the company for having an asset on its balance sheet, or, in technology's case, from what we've seen over the course of decades, the ability to acquire to grow and have that vertical integration as kind of the reasoning for the strategy?

MARK SIROWER: So you hit it right on the head. I mean, acquisition's ultimately about growth. But we start out with the presumption that capital is luxurious. It's expensive to touch. It has a cost. And one of the things we know about capital, there are smart things to do with capital and less smart things.

So in this sort of period of an M&A wave, it's very important that acquirers take that step back and try to resist the urge to be reactive and trapping themselves in this sort of constant battle to play not to lose and play to win, which is making the tough decisions about what pathways for growth are most important to them and what assets-- and not look at deals in isolation, but think about portfolios of assets are going to be most important for their growth.

RACHELLE AKUFFO: And one of the things we're seeing, as we do look at things like chipmakers, obviously, Apple released its own line of chip makers. As you look at some of the companies who are battling with things like supply chains and wondering about the future, could we see perhaps a Ford perhaps acquiring a chip maker? Do you see some of these sectors that are seeing more consolidation perhaps getting the ire of some regulators as well if they become too big?

MARK SIROWER: That's always a concern in large deals. And we counsel advise acquirers to not be surprised about their portfolio of assets about which pieces-- so this is the time to think about which pieces might be good candidates for divestiture.

RACHELLE AKUFFO: All right, will do. Thank you for your time this afternoon, lots of great insights there. Mark Sirower, Deloitte Partner in M&A and Restructuring, thank you for your time today.