Runaway inflation, the biggest surge in COVID-19 infections to date and war in Ukraine have not been enough to throw M&A off track in North America. The market flinched only slightly in Q1 2022, even as deals stalled in other parts of the world in light of macroeconomic and geopolitical concerns.

There was US$549 billion worth of newly minted deals in the first three months of the year—a modest 10% drop from the previous quarter. That compares with falls of 43% and 46% in EMEA and APAC, respectively.

Putting all their techs in one basket 

As has so often been the case in recent years, tech M&A is all the rage. At US$199.8 billion, the sector comfortably outsized the next four largest industries. This wouldn't be the case were it not for Microsoft’s goliath US$75 billion bid for gaming company Activision Blizzard. Gaming has made a considerable contribution to the tech deal tally.

Days either side of Microsoft's splurge, Take Two Interactive agreed a US$12.2 billion deal for mobile gaming company Zynga, while Sony inked its US$3.6 billion acquisition of video game publisher Bungie. These deals helped ensure the North American tech sector contributed more than a third of the continent’s M&A value and as much as a fifth of global M&A.

Sponsored run  

Another area of strength is financial sponsor activity. North American leveraged buyouts totaled US$102 billion in Q1, a 35% year-on-year increase—again, it's all about tech. Led by the US$16.6 billion takeout of virtualization software firm Citrix Systems, buyouts accounted for nearly a fifth of total North American M&A value.

The second biggest buyout was Thoma Bravo’s US$10.6 billion offer for Anaplan. Since the start of 2021, Thoma Bravo has acquired 13 software firms for more than US$42.2 billion. Undervalued cloud software companies such as C3.ai, Sumo Logic and 2U could well be next.

SPACs to the drawing board 

After exploding onto the scene, SPAC deals are proving far more elusive. The first quarter of the year recorded 17 SPAC deals worth US$8.8 billion, a 95% drop from the record set a year ago.

Many of these deals have not turned out as hoped. Several startups that went public after merging with a blank-check company have seen their shares plunge in recent months to well below the US$10 at which they typically start trading. This has been enough to draw the ire of the Securities and Exchange Commission, which has proposed greater investor protections and legal recourse against SPAC sponsors and deal targets that make misleading projections.

While retail investors have had their fingers burned, these underwater deals represent a buying opportunity for sponsors and other bargain hunters—one investor's loss is another's gain.

Events, horizon 

North America continues to outperform, but activity has slowed. After a quarterly peak of US$801 billion in Q2 last year, North American activity began contracting in the summer when inflationary pressures and the threat of rising interest rates first began weighing on dealmakers’ minds. Those concerns have not gone away.

On April 12, 2022, the Bureau of Labor Statistics' CPI print for March came in at 8.5%, up from 7.9% in February. That's the biggest rate of price gains in the US in four decades. One saving grace is the growth rate of core inflation, which strips out volatile fuel and food prices. At 6.5%, core CPI was up just 0.3% for the month, below the 0.5% estimate.

Inflation may be peaking. The question is, what's on the other side, and what will it mean for investors?