Appetite for M&A remains strong despite economic headwinds

Many business leaders fear recession, but also expect deal making to continue.

Carole Streicher

Carole Streicher

Partner, U.S. Deal Advisory and Strategy Leader, KPMG US

+1 312-665-2138

Philip J. Isom

Philip J. Isom

Principal, Advisory, Corporate Finance, KPMG US

+1 312-665-1911

June 2022

Merger and acquisition activity in the first half of 2022 slowed from the sizzling pace in 2021. With Russia invading Ukraine, inflation and interest rates soaring, and the stock market turning bearish, deal makers faced headwinds from multiple directions. Global deal volume fell 26 percent while deal value dropped 30 percent from the first half of 2021.1 But as the year progresses and worries about recession grow, appetite for deal making has hardly disappeared, according to 360 U.S. business leaders KPMG surveyed at the end of May.


Deal volume and value fell from the highs of 2021

H1'22 deal trends

The falloff in deal value and volume in the first half of 2022 was slightly higher in the U.S. compared to the global results. The number of deals announced for purchase of U.S.-based companies (by U.S. and overseas acquirers) fell 28 percent, from 8,429 in H1’21 to 6,085 in H1’22. As with global deals, values fell further than volumes, dropping 35 percent from $1.27 trillion to $827 billion. The biggest declines by volume in the U.S. and globally were in consumer and retail (C&R), and energy, natural resources, and chemicals (ENRC).

But despite growing expectations of recession by year-end, nearly 80 percent of respondents say their appetite for deals is as strong or stronger than in 2021. “Yes, there is a lot of uncertainty now in the market,” says Carole Streicher, U.S. Deal Advisory and Strategy Service Group leader for KPMG, who notes that sentiment among deal makers has deteriorated further since the survey was taken. “But the fundamental drivers of M&A remain in place. Companies use M&A to grow, to enter new markets, to acquire new capabilities. They also use M&A to exit businesses and sharpen their focus.”

In the survey, which was completed before equity markets fell into bear-market territory in June, more than half of respondents said they expected valuations to continue to rise. Not surprisingly, executives in ENRC were the most bullish, estimating that values could rise by more than 20 percent. As economic growth slows in the second half of 2022, as KPMG economists expect, such high valuations will make flawless deal execution imperative, particularly for increasingly common complex transactions.2 “Buyers need to be able to identify and pursue extraordinary synergies to make their deals succeed,” says Streicher. “This requires deep industry knowledge and experience— to help define big strategic goals to make a deal that will help the company pull ahead of its peers.”

The main factors behind the sustained appetite for deal making are competitive pressures in the market and the ever-growing need for digital transformation and technological advancements. The two most cited deal rationales by companies are access to new products, services, and technologies (18 percent) and cost synergies/ operational efficiencies (14 percent). Accordingly, executives say the most attractive targets for 2022 and beyond are assets that can provide new capabilities or products (21 percent). “To remain competitive, companies are compelled to buy new capabilities,” says Philip J. Isom, Global Head of M&A at KPMG. “Last year, the number of deals in which a non-tech firm bought a tech firm jumped by 68 percent, according to our data.”

While these forces are significant across the board, supply-chain expansion is also a key driver for ENRC and industrial manufacturing (IM), and cash availability is the biggest factor for the technology, media, and telecom (TMT) industry.

For executives who believe appetite for M&A is now weaker than last year, the most often cited reasons are inflation, rising interest rates, and overall economic uncertainty, as well as higher cost of capital. However, 29 percent of respondents say the decline in equity markets helps their M&A plans by expanding the list of affordable targets.

“Yes, there is a lot of uncertainty now in the market, but the fundamentals of M&A remain in place. Companies use M&A to grow, to enter new markets, to acquire new capabilities. They also use M&A to exit businesses and sharpen their focus.” – Carole Streicher, U.S. Deal Advisory and Strategy Service Group leader, KPMG

Key M&A trends in the second half of 2022

In our mid-year survey, 61 percent of executives see M&A activity increasing significantly or somewhat in their industry in the next 12 months, with IM respondents most bullish at 68 percent. However, when asked what is their company’s plan for M&A in the coming year, 51 percent of all respondents say they will increase deal making activity somewhat (46 percent) or significantly (5 percent).

This divergence in business leaders’ optimistic outlook and their more conservative plans is largely due to inflation, rising interest rates, and uncertain macroeconomic conditions. While 65 percent of respondents said that the Russia-Ukraine war has affected their business, the biggest concerns remain inflation and its economic consequences. Some three-quarters (73 percent) of executives say inflation has hurt their company’s margins. Almost half of respondents (47 percent) believe that there is more than a 50 percent chance of recession before the end of 2022. The most pessimistic are executives in C&R and TMT with 60 percent and 58 percent of respondents, respectively, saying a recession will begin before the end of 2022.

KPMG economists are not forecasting a recession in 2022, but persistently high inflation and rising rates have raised the risk that consumer spending may show weakness toward the end of the year, making a recession in 2023 increasingly likely. The latest data showed that prices remain at a 40-year high, and this forced the Federal Reserve to raise its benchmark rate by 0.75 percentage points at its last Federal Open Market Committee meeting on June 15. This was the U.S. central bank’s largest rate hike in 28 years. We simulated what might happen to consumption if inflation stays at current levels through the summer and the Fed “takes an even more active monetary policy path.” Under such a scenario, consumption—which accounts for roughly two-thirds of all economic activity in the U.S.—could weaken markedly and “2023 recession risks may rise appreciatively,” KPMG economists say.3 If a recession does occur, economists expect deal activity to drop. “We are beginning to see companies use M&A to position themselves for a changed environment,” says Isom. “They are trying to get deals done before interest rates rise further or divest non-core assets ahead of recession.”

Whether there will be a severe economic slowdown or an outright recession, it is clear that deal making and deal execution will become more challenging. In particular, deals that are predicated on revenue synergies or that involve ambitious strategic goals—like transforming business models—will require the highest levels of expertise. It will be critical for deal teams to have deep experience with target identification, diligence, and value capture.

“We are beginning to see companies use M&A to position themselves for a changed environment. They are trying to get deals done before interest rates rise further or divest non-core assets ahead of recession.” – Phil Isom, Global Head of M&A & Capital Advisory leader, KPMG


In the coming months, deal makers will have to navigate a more unpredictable M&A landscape than they’ve grown accustomed to in the past couple of years. As corporate profits are squeezed from rising input costs and financing for deals become more costly, future M&A trends probably will diverge from our survey respondents’ expectations and deal activity is likely to cool off. If there is a recession, it will further slow deal making.

Yet a cautious optimism may be justified. The unemployment rate is expected to stay low, and this bodes well for healthy consumer spending through 2022. Meanwhile, if inflationary pressures—especially energy prices—start to ease, the Fed could slow the pace of rate hikes. The economy still may avoid a recession. “In these volatile times, deal makers will need to be more thoughtful,” says Isom. “Identifying the right opportunities will take more advanced planning and more careful diligence than in a bullish market. But good opportunities do exist.”



  1. Source: 2022 data through June 15, 2022. Source: CapIQ, Refinitiv, Pitchbook.
  2. Source: “Navigating complex M&A: How to win in the age of the complex deal,” KPMG LLP, June 2022.
  3. Source: "Bad news sells, data tells: Are we racing toward a recession?” KPMG LLP, June 7, 2022.