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Umpqua Bank 2022 Outlook Report: Strong M&A Activity to Continue

December 16, 2021, 07:13 AM
Filed Under: Mergers & Acquisitions

Merger and acquisition activity will remain robust in 2022, spurred on by both opportunistic and defensive strategies, according to an economic outlook report released by Umpqua Bank titled, "Headwinds & Opportunities: Economic Trends & Predictions for Businesses in 2022."

"We're finishing up a robust year for M&A and expect more of the same in 2022," said Richard Cabrera, head of Middle Market Banking at Umpqua. "That's good news for business owners looking to sell or exit their enterprises, as rising volume tends to raise valuations. In this environment, it's important for acquirers to have laser-focus on the highest-quality businesses and clearly identify the strategic advantage of an acquisition. Those with a strong cash position and borrowing capacity will have the advantage if interest rates and valuations continue to rise."

M&A is one of the focal points of Umpqua's Headwinds & Opportunities report, which shares insight from West Coast economists and bank leaders on key issues shaping the 2022 economic landscape, their impact on decision-making and what businesses can do to meet both challenges and opportunities with confidence.

Notable M&A insights from the report include:

  • A surge in merger and acquisition activity of late is driving growth for many companies.
  • If interest rates start to rise into late 2022, cash-rich firms will be in a strong position to acquire competitors whose owners are retiring or are less competitive financially.
  • Firms impatient with the pace of organic growth will look to acquire competitors. Some firms will use acquisition as a defensive strategy, buying others that are steps ahead in innovation.
  • Other companies will take a less risky approach: acquiring firms in their own regional market, helping them boost pricing power, a common phenomenon in areas such as construction contracting, aggregates mining, farming, self-storage, warehousing and banking.
  • Branded food manufacturers in the middle market remain a perennial target for acquisition, due to rising inflation and stressed household budgets, putting pressure on food-makers to get products to consumers at lower price points.
  • Among acquirers, there's an expectation that higher profit margins will be enough to offset the cost of capital. Not because deals are cheaply priced—they're not—but because capital is abundant, stock prices are high, and interest rates are unusually low.

For the full report, visit here.

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