International law firm Herbert Smith Freehills’ (HSF’s) 2022 M&A report, its fifth yearly edition, confirms record global levels of mergers and acquisition (M&A) activity in 2021, and identifies continued drivers for strong activity this year.

According to HSF Global M&A head Gavin Davies, coming out of the pandemic, corporates are determined to emerge successful and sponsors recall the successes of those who invested in the aftermath of the global financial crisis.

"In 2021, corporates focused with ever more urgency on M&A, as a response to the imperative of building resilience and as a fast-track to the imperative of fundamental business transformation.

"Private capital focused on deploying record levels of dry powder, fuelled by buoyant debt markets, with fear of missing out on the once-in-a-lifetime opportunities thrown up by the pandemic. This currently looks set to continue at the same pace into 2022,” he says.

The report also identifies some of the most important legal issues in global dealmaking.

This includes environmental, social and governance becoming pivotal; active shareholders impacting deals; the surge in public M&A in leading markets; and the impact of foreign direct investment regimes.

On deal execution, the M&A report suggests that transactions are not becoming any more straightforward, with two themes coming to the fore.

Firstly, there is the long-observed growth of government intervention in M&A, most clearly reflected by the rise in national investment regimes such as the UK's National Security & Investment Act which came into force on January 4.

Secondly, there is a newer challenge of resourcing, both within client teams and with professional advisers stretched by frenetic activity levels.

The report also notes wider reasons for caution.

Covid-19 variant concerns will continue to threaten expectations of vaccine-led economic rebound.

There has also been no cooling of geopolitical tensions, as acute as ever in China's relations with the West, and the UK's relationship with Europe, as well as other conflicts around the world.

However, HSF chairperson and M&A partner Rebecca Maslen-Stannage says geopolitical headwinds have been accepted as the ‘new normal’ by deal participants for several years now, and that the M&A market has proved its ultimate resilience in taking the pandemic in its stride.

More business failures are anticipated, particularly when the end of government support measures around the world are fully felt, but there has not yet been the level of distressed M&A that practitioners braced themselves for when we went into lockdown back in 2020, the report states.

Moreover, there is the factor that 2021 ended with fresh warnings about mounting inflationary pressures.