Challenges loom—including the possibilities of tighter regulations, rising inflation and a stock market correction—but markets show little sign of slowing down

The value of US M&A blew past the US$2 trillion mark in 2021, ending the year more than 30 percent above the previous record set in 2015. US deal value reached US$2.6 trillion, twice the value of 2020, and volume set a new record at 7,896 transactions.

Confidence reigned among dealmakers as stock markets continued to rise; increasing numbers of SPACs sought merger targets; and private equity houses set new records, deploying some of the sector's historic levels of dry powder. All of which was underwritten by flexible and cheap debt financing.

Technology was a major driver of M&A, fueled by pandemic-related trends that continued to accelerate deployment of digital technologies across all sectors. The tech sector itself led the sector charts. Companies with product mixes boosted by the pandemic, including those in the pharma and healthcare sector, turned to M&A to complement and add to their existing business portfolios.

Despite a continuing positive outlook, dealmakers will need to keep potential risks in mind in 2022. Under the Biden administration, CFIUS went on a recruitment drive, and it will clearly continue to take a more aggressive stance across sectors, particularly when deals involve technology.

Indeed, regulatory scrutiny is tightening from a number of angles. The Securities and Exchange Commission under chair Gary Gensler is taking a tougher stance on enforcement and has its sights set on SPACs, cryptocurrencies and ESG. And the Federal Trade Commission has announced far-reaching antitrust policy changes that may require companies that reach settlements to observe a ten-year mandatory clearance period on new acquisitions and disposals—the new rules would even apply to buyers of affected assets.

This increasingly tough approach to regulating M&A has so far had little impact on dealmakers' appetites for transactions—although new rules may eventually render some deals less attractive.

In response to recent inflation, the Fed will increase interest rates, which could pose another challenge for dealmakers. But given that rates are so low by historical standards, increases are unlikely to have any direct significant effect on M&A for most of 2022.

One of the biggest questions is whether stock markets will continue to hold up. A correction seems inevitable at some point, but it's unclear what might trigger one in the foreseeable future. For example, markets seem to have shrugged off concerns related to the emergence of the Omicron variant of COVID-19—at least at the time of writing. And private equity still has a mountain of capital to deploy. Recent events, however, suggest that markets will be volatile.

As a result, although regulatory hurdles continue to multiply, we expect 2022 will be another strong year for US M&A, with robust activity through the first half and possibly well beyond.