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After a Solid 2021, Can M&A & Its ETF Soar in 2022?

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It was a great 2021 for mergers and acquisitions (M&A) that were on hold amid the peak of coronavirus-led lockdowns. Global dealmaking hit a record high in 2021, toppling the $5-trillion-mark for the first time. The figure was up about 64% year over year, per Wall Street Journal, pointed out by an Investor Place article.

U.S. M&A activity totaled $2.5 trillion in 2021, breaching the 2015 peak of $1.96 trillion by 28%, per a Bloomberg report. Easy money policies and a booming a stock market helped the space in winning. According to WSJ, 59,748 deals were closed in 2021 through Dec 21, 22% higher than a year earlier, with an average value of $95.4 million per deal. Deal volume in North America remained consistently strong during 2021, with acquirers closing 614 deals, almost double the volume seen in the past one year.

Winning U.S. deals of the last year include the announcements of Nvidia-Arm deal for $40 billion, the Microsoft-ZeniMax Media deal for $7.5 billion, the Gilead Sciences–Immunomedics deal for about $21 billion, the Verizon Communications-America Movil deal for about $6.9 billion and ByteDance’s selection of Oracle as its technology partner in the United States.

Though Nvidia’s $40 billion bid to buy U.K. chip designer arm from Japanese tech giant SoftBank has hit some hurdles, the participants of the deal are leaving no stone unturned to turn the announcements in reality.

What Awaits in 2022?

The start of the year is also busy with great deal announcements. The world's largest software maker — Microsoft (MSFT - Free Report) — has agreed to buy gaming giant Activision Blizzard for $68.7 billion. It will be the largest-ever merger in the tech space, topping Dell's (DELL - Free Report) purchase of EMC for $60 billion in September 2016 (read: 5 ETFs to Cash in on Microsoft-Activision Deal).

While the sky-high valuation of stocks and rising rate concerns are feared to be slowing down the deal-making momentum in 2022, solid cash balances to the companies and still-low rates (given the historic standards) should boost the deal-making spree. Cash and equivalents among S&P 500 companies increased 11% over the third quarter compared to the prior-year period to $3.78 trillion, according to S&P Global Market Intelligence data.

Per a Deloitte survey, as much as 92% of respondent dealmakers expect deal volume to increase or remain stable in 22.  About 54% of responding dealmakers think the tightening regulatory environment will spur more deal activity in 2022, as companies will seek to close out intended deals before the implementation of more challenging regulations. About 68% companies are interested in international M&A. About 44% say they are considering restructuring over the next 12 months.

What Will Drive M&A in 2022?

Advisory firm Willis Towers Watson highlighted a few factors that could drive deals in 2022. The growing emergence of ESG is forcing many CEOs to consider M&A deals to conform to the substitutability rule. Digital transformation is another winning factor now as the COVID-19 pandemic has increased the value of digitization by manifold. Another factor — supply chain disruptions — that we are facing currently is leading to high inflation.  

Against this backdrop, below we highlight the pureplay M&A ETF that should be under watch currently.

IQ Merger Arbitrage ETF (MNA - Free Report) in Focus

The underlying IQ Merger Arbitrage Index seeks to identify opportunities in companies whose equity securities trade in developed markets, including the United States, and are involved in announced mergers, acquisitions and other buyout-related transactions. MNA charges 77 bps in fees.

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