M&A Activity Continues Despite Economic Headwinds

September 1, 2022

2021 was a busy year for U.S. mergers and acquisitions. Even before the onset of 2022’s economic challenges, many would not have expected M&A activity to stay on pace with 2021. No doubt the ongoing economic turmoil is impacting M&A markets, but with more than half of 2022 in the rearview mirror it’s also clear that an appetite for M&A persists.

The chartⁱ above tracks quarterly M&A activity (number of closed M&A transactions involving U.S. target companies) for seven selected industries, namely:

  • Aerospace and Defense
  • Health Care Providers and Services
  • Software
  • Professional Services
  • Construction and Engineering
  • IT Services
  • Healthcare Technology

As can be seen in the chart, M&A activity in these industries dipped in Q2-2020 during the throes of the COVID-19 pandemic, and then peaked in Q4-2021, capping what was a robust year for deals. Some of the uptick in 2021 could have been the result of 2020 deals being postponed. Q1-2022 activity was closely aligned with Q1-2021 (3% decrease quarter-over-year) before slipping noticeably for Q2-2022 (21% decrease quarter-over-year).ⁱⁱ

The impact of broad economic indicators on M&A activity will vary from industry to industry and within different segments of each market. Factors creating uncertainty in 2022 include:

  • Rising inflation
  • Supply chain disruptions
  • Volatility in energy prices
  • COVID-19 ongoing impact
  • Russia-Ukraine war
  • Lower equity valuations
  • Labor supply issues
  • Interest rate hikes

Rising inflation and interest rate hikes are of course linked. In an effort to tame inflation, the Federal Reserve has increased its federal funds rate several times in 2022 (see chart below), with another increase possible for September. The federal funds rate had been dropped close to 0% in 2020 during the pandemic.

Rising interest rates are particularly relevant to M&A deal flow. With the cost of debt rising, acquirers that tend to use leverage in their deals may be holding back in the current environment. On the flipside, strategic acquirers with significant cash on their balance sheets may be inclined to seize opportunities.

As companies grapple with economic uncertainty, they’re faced with preparing for a possible downturn on the one hand and growing their businesses on the other. Measures like conserving cash, scaling back capital expenditures, and reducing operating expenses may be prudent, but those measures could also hamper organic growth.

As to inorganic growth, some acquirers may choose to defer transactions as they await greater clarity on the economy. Even so, 2022 YTD transaction volume for our selected industries was down by only 16% from 2021 YTD.ⁱⁱⁱ Moreover, there was a 35% decrease in the number of deals valued at $100 million or more.ⁱᵛ This may suggest that M&A activity in the lower middle market has been comparatively stable so far in 2022.

Drilling down industry by industry, the chart above shows a consistent directional trend.ᵛ As previously noted, for 2022 YTD the overall number of transactions decreased by 16% compared to 2021 YTD. Here’s how each of our seven selected industries fared:

  • Aerospace and Defense: 30% decrease
  • Construction and Engineering: 2% increase
  • Health Care Providers and Services: 25% decrease
  • IT Services: 3% decrease
  • Software: 20% decrease
  • Healthcare Technology: 35% decrease
  • Professional Services: 4% decrease


Aronson provides M&A-related services to firms operating in a variety of industries, including Transaction Advisory, Valuations, Accounting Advisory, and Forensic Accounting & Litigation Support. Whether it’s pre-acquisition financial due diligence, post-acquisition purchase price allocation analyses, navigating the GAAP intricacies of business combination accounting, or helping to resolve a post-acquisition dispute, Aronson is here to help. Contact us to learn more.


ⁱ The data supporting this and other charts was obtained from S&P Capital IQ.

ⁱⁱ Q3-2022 activity through August 15 saw 448 closed deals.

ⁱⁱⁱ 2022 YTD data covers the period from 01/01/22 to 08/15/22. 2021 YTD data covers the period from 01/01/21 to 08/15/21.

ⁱᵛ Based on transactions where deal terms were disclosed.

ᵛ Industry data is based on the primary industry listed in S&P Capital IQ for each target company.