SCOTT: We had a very active year for IPOs in 2021, but the interest rate environment is going to dictate the pace of activity throughout 2022 based on how far and how fast the Federal Reserve will move. Since mid-November, major pullbacks in the Russell 2000 and the NASDAQ have transpired on rate concerns. Nearly two-thirds of 2021 IPOs have traded below market. And close to 600 DeSPAC processes have yet to occur. With 2021 being the fourth consecutive year of increased issuance for U.S. IPOs, it would be surprising for 2022 to maintain that trend. Still, as of January we had over 100 companies in backlog for U.S. IPO registration, and there is significant pent up demand for venture backed or sponsored backed companies to use the IPO market as an exit strategy.
DAVIDSON: The past two years were unprecedented, with approximately $465 billion of high-yield issuances in 2021, outperforming 2020. This year, high-yield issuances are predicted to be slightly down at $400 billion to $430 billion. Inflation is a huge factor. CPI was up almost 7% year-on-year in December and M2 money supply reached $21 trillion, $6 trillion above its level two years before. At least three Fed rate hikes are likely this year. So we expect pockets of
volatility in the high-yield market through the year. This could temporarily slow M&A activity, as buyers negotiate for wider flex language within financing
commitments. In private credit, the level of capital has reached unprecedented amounts. The volume of high quality investment opportunities has remained the same or declined slightly. This supply-demand imbalance is likely to keep private credit yields unchanged for the year at or around Libor + 550. However, for the most pristine opportunities, we expect pricing to break through the Libor + 500 floor.
SACHIN: Continued economic tailwinds, the availability of capital, and record-low default rates all suggest little immediate risk of a recession or credit crunch. The fast and intense 2020-to-2021 restructuring cycle focused on COVID-impacted sectors such as energy, retail, travel, entertainment, and hospitality. But that cycle was relatively short due to immense fiscal and monetary support, and lenient creditors. As the Fed starts tightening policy, struggles may arise for companies unable to fix COVID-related problems, adjust to supply chain disruptions, or pass on inflationary pressures. In these cases, default rates may rise later in 2022. Now would be the time for them to address liability management through credit agreement amendments, maturity extensions, exchange offers, or refinancings. High-growth companies burning cash may benefit from structured debt or equity transactions.
SHAUN: Europe and the UK in particular saw very strong debt markets in 2021, through greater opportunity for refinancing and improved leverage opportunities, as well as competitive M&A markets bolstered by acquirers with significant dry powder. In 2022, direct lending will likely continue to dominate the European mid-market with banks more likely to be supportive through revolvers than through issuance of Term Loan B facilities. In recent months, ESG-linked lending has gained momentum, with credit funds offering margin ratchets. Annual audits can benefit issuers with ESG credentials by producing a small
but meaningful benefit in spread. As issuers come to maturity, those lacking ESG credentials may face greater refinancing challenges. With government stimulus receding and inflation building, we would expect increased restructuring activity in Europe later this year.
MARSHALL: With more than $5 trillion of acquisition value, 2021 was a record year for M&A globally. There was significant increase in volume for deals of all sizes. Indeed, Stephens also had a record year for M&A and we anticipate a busy 2022. Buyers are focusing on how inflation, supply chain disruptions, and labor shortages may affect the normalized earnings power of targets. Public companies continue to be highly active selective acquirers of businesses that can supplement their organic growth and support their core competencies, while divesting noncore and low-return businesses. Many private companies face intense generational shifts in ownership as they search for sponsorship partners. In addition, the pace of transatlantic deals is poised to accelerate in 2022
as buyers and sellers seek synergies that help them improve margins, market share, and capabilities.
MICKEY: We see exciting developments with both family businesses – where a family is still involved in operating and growing that asset by investing much of their net worth – as well as with family offices, where a family might have exited a legacy business and now has a pool of capital to deploy, manage, and protect. Family businesses in 2022 are attempting to navigate myriad macroeconomic pressures, for instance by onshoring production instead of outsourcing it abroad. Some families may need to be more innovative about accessing capital for organic and inorganic growth initiatives. Family offices are increasingly
focused on standing apart from private equity firms as the long-term capital provider to family businesses. Family offices are doing this by applying flexibility in the capital structure; acting as either a majority, minority, or structured equity partner; and offering a supportive organizational culture. We anticipate a ramp up of family business-family office partnerships this year.
BRIAN: The U.S. private equity market hit record activity in 2021, with over $1 trillion in total deal value and 8,500 in total deal volume. This exceeded the 2019 record by over 50%. Surprisingly, over 70% of capital that sponsors deployed in the U.S. last year went to add-on acquisitions for portfolio companies. Usually there is more of a blend between add-ons and platform investments. Exit activity was spread out across M&A sell-side, IPOs for sponsor backed companies, and SPACs. The fundraising environment also was quite energetic, with mega funds raising record amounts of capital. These PE trends are
largely on track to persist in 2022, albeit likely at a slightly moderated pace.
SIMON: Similar to the U.S., the European PE market had record capital deployment characterized by a recovery in confidence from 2020. Last year Europe had over 7,000 new deals – compared with 4,000 to 5,000 deals in the last two years – as total deal value skyrocketed to over €750 billion. The middle market drove much of this activity. A seller’s market dominated, with buyers competing aggressively for assets. Pricing remained robust, and the median EV-toEBITDA multiple was approximately 12.5x. Like in the U.S., add-on deals and continuation funds were popular. Transatlantic sponsor-to-sponsor activity, from the U.S. to Europe and vice versa, picked up considerably. European sponsors also have been reinvesting as minority holders in successful businesses they recently sold. Huge amounts of unspent capital and highly liquid credit markets suggest 2022 will be another strong year.