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17 August, 2022

FDI in 2021: M&A trends

Following an 11% decline in cross-border mergers and acquisitions in 2020, foreign M&A deals bounced back in 2021 and far exceeded pre Covid-19 levels according to Investment Monitor’s Global FDI Annual Report 2022.

By Naomi Davies

The number of cross-border merger and acquisition (M&A) announcements increased significantly in 2021 with a 45.2% jump compared to the previous year. Analysis from Investment Monitor’s Global FDI Annual Report 2022 revealed that foreign M&A levels grew at a faster rate than greenfield FDI, with FDI project numbers rising by 18.1% from 2020. Although both foreign M&A and FDI project numbers fell between 2019 and 2020, greenfield FDI suffered a steeper decline (-17.5%) compared with M&A’s 10.6% drop.

According to Investment Monitor chief economist Glenn Barklie: “Companies tend to be cautious during recession periods, however they are also opportunistic. As seen with global financial crisis in 2008, M&A recovered at a much faster rate compared with greenfield FDI. Stable companies take advantage of other company valuations falling or being more open to acquisition. On the other hand, companies are much slower to return to greenfield operations.”

As part of the Global FDI Annual Report 2022, Investment Monitor used GlobalData’s Deals Database to examine M&A deals announced across 2019, 2020 and 2021. As part of our analysis, asset transactions were excluded and deals without acquirer or target country information were omitted.

Cross-border mergers surge by almost 50% in 2021

Overall, more than 1,500 merger deals were announced in 2021, a 20.3% increase from the previous year. Cross-border mergers grew at a much faster pace, up 47.6% compared with 2020. This surge followed a modest 1.4% increase in foreign mergers between 2019 and 2020. The uptick in activity can be attributed to increased investor confidence post Covid-19 as economies began to reopen, vaccine rollouts became more widespread, and restrictions eased.

Cross-border mergers accounted for 13.3% of all merger deals announced in 2021, up from 10.9% in 2020 and 11.2% in 2019.

Technology, media and telecoms (TMT) was the most popular industry for foreign mergers, with more than half of all deals announced involving the sector. Financial services placed second with 66 deals, more than double the number recorded in 2020. Business and consumer services ranked third. The energy and utilities, and transportation, infrastructure and logistics industries were among the highest growth sectors for cross-border mergers in 2021, with the number of deals in both categories more than doubling. The only industry that experienced a decline in foreign mergers was the retail, wholesale and food services sector with a 21.4% drop in announced deals.

The highest-value cross-border mergers announced in 2021 included Australia-based oil and gas exploration company Santos’s A$21bn ($14.9bn) merger with Papua New Guinea’s petroleum business Oil Search. The deal became effective in December 2021 and created a global top 20 oil and gas company with assets across Australia, Timor-Leste, Papua New Guinea and North America.

In addition, US-based Spanish-language broadcaster Univision Communications announced plans to merge with Mexico-based mass-media company Televisa in April 2021. The $4.8bn deal was closed in January 2022.

Foreign acquisitions climb by 45%

More than 26,000 acquisitions were announced in 2021, an increase of more than one-third compared with 2020’s figure. The number of domestic deals recorded grew by 2.1% between 2019 and 2020, followed by a 29.4% increase in 2021.

After a 10.8% drop in foreign acquisitions between 2019 and 2020, the number of deals announced in 2021 grew by 45.1%. Cross-border acquisitions accounted for 31.2% of all acquisitions announced in 2021, up 2.5 percentage points from the previous year.

Experts have advised that the increase in foreign acquisition activity may be linked to supply chain security concerns. Investors may also have wanted to act before the introduction of proposed protectionist foreign investment regulations. For example, businesses with an interest in a UK-based company may have been prompted to begin the acquisition process in 2021 before the UK’s National Security & Investment Act entered into force in January 2022.

TMT was the leading sector for foreign acquisitions in 2021, followed by business and consumer services, financial services, and construction and real estate. The automotive sector was the fastest growing of all industries analysed, with the number of overseas acquisitions rising by 69.8% from the previous year. Deals in the paper and packaging, and energy and utilities sectors also surged, increasing by 55.8% and 52.1%, respectively.

The metals and mining, and agriculture, forestry and fishing industries experienced a decline in foreign acquisitions between 2020 and 2021, dropping by 0.9% and 6.9%, respectively.

More US-based companies were acquired than any other country in 2021. Almost 1,500 deals involving a foreign entity acquiring a US business were announced during the year, a 50% increase from 2020. UK companies were the second most popular acquisition targets, making it the top destination in Europe, followed by Germany, which placed third. Australia ranked fifth globally and was the leading Asia-Pacific deal country.

Spain was the fastest growing deal country within the top 10. The number of Spanish companies acquired by foreign businesses increased by 89.3% between 2020 and 2021.

China placed tenth globally and was the only country within the top ten to experience a decline in foreign acquisitions. Approximately 220 Chinese companies were acquired by foreign entities in 2021, a 4.8% drop compared with 2020.

One of the largest foreign acquisitions announced in 2021 was Canada-based railway company Canadian Pacific Railway’s $31bn acquisition of US-based rail company Kansas City Southern. The deal is currently awaiting approval from the US Surface Transportation Board and its verdict is expected in the fourth quarter of 2022. If successful, Canadian Pacific Kansas City will become the only single-line railroad linking the US, Mexico and Canada.

Other high-value deals include US-based financial services company Block’s $29bn acquisition of Australia-based Afterpay, a financial technology company best known for its buy now, pay later service. In addition, Canada-based multinational investment bank and financial services company BMO Financial Group announced the signing of a definitive agreement with France-based banking group BNP Paribas to acquire US-based Bank of the West in December 2021 for a cash purchase price of $16.3bn.

Click to download the full Global FDI Annual Report 2022.

Data used refers to merger and acquisition deals announced in 2019–2021 and excludes asset transactions. If the acquirer country or deal country was unknown, the deal was omitted. Note that deals can span multiple countries and industries.

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