A View From Me on ’23 – M&A shrivels as Ukraine bites

Rowan Bamford, president, Liberty Global Transaction Solutions says the war in Ukraine will continue to be the biggest impact on the appetite for mergers & acquisitions (M&A).

So, we have made it through. After a year of scaremongering, hot air (from politicians) and finally hot price rises from everyone with anything to sell, we’ve reached the last month of 2022 largely intact, even if leaner and a little greyer around the temples.

If you boil it down, however, 2022 has really been a very simple year for the M&A community.  Everything that you need to know about the M&A market dynamics of 2022 happened in the first two months of the year, although the effects took almost the whole year to properly play out.

In reality, there is just one thing that you need to know to understand this year, and I can reduce even that down to a single word – Ukraine.

Right from the start, the invasion of Ukraine in February rocked geopolitics and undermined pricing and supply for global energy resources.  Given that energy is such a fundamental economic resource, price rises on this one item triggered price rises across all asset classes.

The impacts of the war in Ukraine have taken many months to be quantified; and they are multiple, but they have merged together towards the end of the year to create the prospect of a global recession and high global inflation.

However, for the first half of the year, it would have been possible to imagine that PE houses and M&A dealmakers across the world hadn’t noticed the what was sitting in on Europe’s eastern flank.  Buoyed up by a stupendously successful 2021, with big war chests, supported by cheap funding, and many deals working through full pipelines, the M&A market continued to steam along under its existing momentum for most of the first half of the year.

PE firms continued to be able to raise cash, continued to pay handsomely for assets and sellers remained (very) happy to sell.

But by mid-year, mutters began to be heard about possible over-pricing as PE firms began to look over their shoulders at the geopolitical issues building up around them.  The arrival of global inflation began to choke off new cheap finance; and meant that the PE firms could no longer use existing pricing models to finance deals.  Suddenly in late August, the brakes were slammed on, and the deal pipeline ran dry.

We have ended 2022 in a very different place to where it began.  However, although the global economic outlook remains challenging, I, personally am less daunted when I look at both M&A as a whole, and our outlook as an M&A insurer.  With the right pricing model and a calm approach to the new risks we need to underwrite, I anticipate that we will see a settled and steady start to 2023, and that overall this will be a year without the volumes of 2022, but where the deals that do come through are carefully considered, high quality, and possibly clearer to us to consider as an insurance risk.

On the insurance side some capacity has left the market, largely because insurers are taking smaller and more cautious line sizes on the larger tower-structured deals.  But at Liberty GTS we take a more confident approach, looking to double down on due diligence, choose the right deals to insure, but remain engaged with the market at the same level.  With this approach in hand, I look forward to 2023 with great interest.