M&A Risk in Review
1H, 2022
Contents
02

Methodology andIntroduction
03 key takeaways
04 	Part 1: M&A trends in thenext 12 months
10 Financing prospects
14 Dealing with due
diligence
16
Part 2: Risks and regulation
24 	Conclusion: Key trends forthe year to come

Aon Risk in Review, 2021–22

Methodology
In late Q4 2021 and early Q1 2022, Mergermarket surveyed 50 senior executives
from corporate development teams, private equity firms, and investment banks.
40% of respondents were based in North America, 30% in EMEA, and 30%
in APAC. The survey included a combination of qualitative and quantitative
research. Results were analyzed and collated by Mergermarket. All responses areanonymized and presented in aggregate.

Introduction
As the world began to recover in 2021 from the COVID-19 pandemic, global M&A
activity surged. Buoyed by the reopening of the world economy, supportive fiscal
and monetary policy, and the eagerness of both strategic buyers and private equity
investors to deploy capital, deal activity hit record highs. Mergermarket data reveals
annual deal value surpassed $5 trillion for the first time last year, reaching $5.7
trillion in all, with nearly 26,000 transactions announced worldwide.

2

Aon Risk in Review, 2021–22

Some of the trends powering dealmaking lookpoised to endure, which was reflected in survey
respondents’ optimism around deal activity.
Digital transformation remains a key motivatorbehind transactions, and consolidation drives
are emerging in several sectors. Cybersecurity
investments are particularly sought after in lightof global geopolitical conditions. Moreover, manyorganizations are well positioned to capitalize on
record piles of dry powder.
Against that, risk is on the rise. Russia’s invasionof Ukraine has raised political tensions to levels
not seen for decades. The economic impacts are
already being felt, most notably through a sharp
spike in inflation in many economies, prompting
monetary tightening; global growth is likely tobe slower than expected this year.
In this report, we explore these dynamics indetail. We report on investors’ expectations for
global M&A over the next 12 months, standout
sectors, the key risks they see – and how best
to mitigate them.

Key takeaways fromthe report:
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●

●

3
●

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Almost three-quarters of respondents (70%), by far
the largest share, cite technology, media & telecoms(TMT) as the most prolific sector in terms of expected
dealmaking over the next 12 months. At the otherend of the spectrum, 54% believe M&A will be least
prolific in the energy, mining & utilities (EMU) space.
Most respondents (54%) identify Asia Pacific(excluding Japan) as the single most attractive
region for M&A over the next 12 months. Just overa third (34%) single out North America, with afurther 32% identifying that region as the second
most attractive for M&A overall.
The two sources of financing that most respondents
believe will emerge as primary options over the 12months are private equity (64%) and non-banklenders/credit funds (50%).
Amid ongoing COVID-19 vaccine roll-outs andcontinued easing of pandemic restrictions in multiple
economies, many respondents are amending
their M&A strategies to include more alternative
investments (38%), as well as increasing the size ofdeals they are undertaking (36%).
The vast majority of respondents (90%) predict
an increase in scrutiny of deals for environmental,social & governance (ESG) implications over the
next three years; almost half (48%) believe theincrease will be significant.
The form of regulation that respondents find mostchallenging is antitrust, identified by 50% of all
survey participants as one of their top two concerns,
followed by environmental regulations (42%).
Just under half of respondents (44%) employ
some form of credit risk technology. Half of those
respondents currently use an artificial intelligencepowered credit risk management system.
In 2021, Aon’s Global M&A and Transaction
Solutions team secured M&A insurance solutions– which include representations & warranties
insurance (R&W), tax insurance, and litigation/
contingent insurance – to help clients execute morethan 1,500 deals all around the world, influencing
deal outcomes in North America, Latin America,
Asia, Australia/New Zealand, the UK and Europe.
Total limits placed globally by Aon topped $74.7
billion. Aon also conducted due diligence andadvised clients on programs to improve outcomesfor over 4,000 deals globally.

Aon Risk in Review, 2021–22

Part 1: M&A trends in the next
12 months
While Russia’s invasion of Ukraine has undoubtedly
elevated risk, this has yet to pass on meaningfully
into dealmakers’ expectations for M&A over theyear ahead. More than two-thirds of those taking
part in this research (68%) expect global M&A deal
numbers to increase over the next 12 months; that
includes 38% who anticipate an increase of morethan 5%.
That optimism reflects several different – butcomplimentary – M&A drivers, particularly inthe context of the COVID-19 crisis. “Many firms
delayed their 2020 investment plans in light of thepandemic,” says the managing partner of a South
African private equity firm, who argues these plans
are now back in play. “2021 would have been abetter year to meditate on opportunities and thepotential of target companies.”

Similarly, the director of corporate development at a
UK corporate says many of the impacts of COVID-19
are only just feeding through. “Market consolidation
and an increase in distressed assets has driven therecord-setting pace for M&A,” the executive says.
“The same pace might continue if the opportunities
for consolidation increase.”
Another factor is digital transformation, withbusinesses in every sector under pressure to
innovate. As the managing director of a Canadianprivate equity firm explains, “The use of technology
in most sectors has driven new deals; the acquisitionof technology companies increased in 2021, a key
trend for strengthening the operations of corporate
acquirers.”

Figure 1: M&A expectations optimistic
What do you think will happen to the number of M&A deals globally over the coming 12 months?
40%
35%
30%
25%
20%
4

15%
10%
5%
0%

Decrease somewhat Remain the same (up to 2% Increase somewhat(by 2-5%)of current deal volume)(by 2-5%)

Increase signiﬁcantly(by more than 5%)

Aon Risk in Review, 2021–22

Identifying opportunities:
Sectors
when slower global growth has drastically reduced
demand for raw materials. It remains to be seen
how quickly dealmaking appetite will return to the
EMU sector as growth recovers – and the Ukraine
conflict has added to commodity market volatility
during Q1 2022. Given the tense backdrop, higher
commodities prices may not necessarily fuel bigticket, intra-sector activity.

In this context, more than two-thirds of dealmakers(70%) expect the technology, media & telecoms(TMT) sector to generate the highest levels of deal
activity over the next 12 months – well ahead of
second-place pharma, medical & biotech (PMB),
picked out by 44%.
Digitalization has also supported dealmakers,
respondents point out, with new technologies
ensuring transactions have been able to go ahead
despite COVID-19 restrictions. “Digital tools havehelped facilitate dealmaking activity,” says the
managing director of an Australian investmentbank. “Even with the inability to travel to the target
destination, deals can be evaluated and completed
on time.”

It is also clear that dealmakers in certain sectors see
significant scope for reducing uncertainty throughthe use of insurance. Aon’s own data reveals thatthe most active sectors for use of representations &warranties insurance (R&W, also known as warranty& indemnity, or W&I) include infrastructure and realestate (figuring in the top five in many regions). This
cover also supports deals in technology (notably,
it featured in 38% of deals in Australia & New
Zealand) and healthcare (among the top five inNorth America, EMEA and Australia).

At the other end of the spectrum, energy, mining& utilities (EMU) is seen as the area of the market
where deal activity is likely to be least prolific.
That reflects the challenges of the past two years,

Figure 2: TMT set to dominate
Which of the following sectors do you believe will be the most/least proliﬁc in terms of M&A
activity over the next 12 months? (Select two for "most proliﬁc" and two "least proliﬁc")
80%
70%
60%
50%
40%
30%
20%

Most ProliﬁcLeast ProliﬁcEnergy, Mining &Utilities

Transportation

Construction

LeisureDefenseReal Estate

Industrials &Chemicals

Business Services

Consumer

Financial Services0%

Pharma, Medical &Biotech10%
Technology, Media& Telecoms

5Aon Risk in Review, 2021–22

Identifying opportunities:
RegionsMore than half of dealmakers identify the Asia
Pacific region (excluding Japan) as providing themost supportive environment for M&A over the next
12 months. Some 54% cite it as likely to be thenumber one market in the year ahead, with a further
20% regarding it as the second most attractive.
“APAC markets have been thriving under toughconditions,” argues the managing director of aninvestment bank in the Netherlands. “After the
initial shock of the pandemic and the ill-effects oncompanies’ operations, they have recovered well.”
The managing partner of a South African PE firm
adds: “APAC manufacturing, business services andtechnology companies are emerging successfully,
with high profitability percentages.”

North America also looks set to figure highly, with
34% and 32% of respondents picking it as theirfirst and second most attractive regions for M&A,
respectively. One attraction is consistency, says
the chief corporate development officer of a US
corporate. “North American markets fluctuate lesscompared to others,” the executive argues. “There
are short-term returns and long-term progress thatinvesting firms can rely on – these conditions areimportant to pursue after an economic slowdown.”
Other regions, by contrast, attract less excitement,
though 28% do single out Europe (excluding theUK) as their second most attractive market for theyear ahead.

Figure 3: Looking forward to APAC activity
Which of the following regions do you believe will be the most attractive for M&A over the next 12 months?
(Select two and rank 1-2, where 1 is the most attractive and 2 the next most attractive)
60%
50%
40%
30%
20%

6

10%
0%

Asia Paciﬁc,excluding Japan
1

2

North
America

Europe, excluding the UK

Sub-SaharanAfricaLatin
America

The UK

Middle East
& NorthAfricaAon Risk in Review, 2021–22

Balancing risk and reward
Average enterprise values on deals with suchinsurance increased worldwide: in Asia, the averagedeal had an enterprise value of $516 million, up
157% on 2020; in Europe and the Middle East,
average enterprise value rose 91% to $441 million;
and in North America, it was up 24% to $408
million, according to Aon figures.

One question for dealmakers is how to reassess
their M&A strategies in the wake of the pandemic.
How might their plans change with COVID-19
vaccine programs progressing around the worldand economies reopening?
Many dealmakers seem ready to take greaterrisk, embracing larger deals once again; morethan a third (36%) expect transaction sizes toincrease over the next year. In fact, there is alreadysignificant evidence of this happening. Aon’s own
data suggests an uptick in mega deals announced
over 2021, as well as increased use of M&A
insurance products to support larger transactions.

Dealmakers are changing course in other regards,
too. For example, 38% are looking at a broader
range of deals, including secondary buyouts,
private investment in public equity deals, and otheralternative investments. The market is also likely to
see more minority deals and distressed transactions.

Figure 4: Bouncing back from the pandemic
How is your M&A strategy changing in the current environment, with the COVID-19 vaccine roll-out andcountries opening up over the course of 2021 and 2022? (Select top two)
40%
35%
30%
25%
20%
15%
10%
5%

Narrowing sector and/or geographic focus

More divestments

Reducing the sizeof dealsMore distressedtransactions

More inwardly focusedMore minority
deals/JVs

Increasing the sizeof deals0%More alternative investments (Secondaries,
PIPEs, Other)7

Aon Risk in Review, 2021–22

That said, the war in Ukraine may give somedealmakers pause for thought, particularly inEurope. While the course of the conflict is very
difficult to anticipate, it is notable that 44% ofinvestment bankers already believed that thecurrent environment – that is, pre-invasion, as

respondents were surveyed in late December
and early January – has led to a decrease in thevolumes of sale processes and auctions that are
being launched. That includes 19% who point to asignificant decrease. The conflict in Ukraine can be
expected to put a brake on things further.

Figure 5: The impact of conﬂict?
How has the current environment impacted the volume of the sales processes or auctions launched?
(Investment bankers only)
25%

20%

15%

10%

5%

0%

Signiﬁcantdecrease

Moderatedecrease

No change

Moderateincrease

Signiﬁcant
increase

Cutthroat competition

8

Nonetheless, sellers will be keen to take advantage
of buyers’ willingness (and deep pockets) to pay
good prices for many companies. The strong
performance of public stock markets over the past
12 months underpins the valuation story – andbuyers report having to pay higher EBITDA multiples
over the course of 2021.

Against this backdrop, more than half of dealmakers(54%) say the majority of the deals they are
currently exploring are going to competitive auction.
Evidently, sellers are hoping to maximize value.

Aon Risk in Review, 2021–22

Figure 6: Seeking higher bidders
For the deals you are currently exploring, are they majority proprietary deals or competitive auctions?
60%
50%
40%
30%
20%
10%
0%

Competitive auctions

Indeed, in many sectors, there is concern thatbuyers are expected to overpay in order tosecure in-demand assets. In the TMT sector,
75% of investment bankers think deal targets
are now overvalued, while 56% say the same of
PMB transactions. Real estate and construction
is another industry where deals are attracting

9

Proprietary deals

premium ratings; 50% of investment bankers say
such targets are overvalued.
Still, in other sectors, many investment bankers
see opportunities to secure good value. Most
significantly, 69% pick out transportation as an area
where deals are undervalued; 44% say the same ofboth the defense and EMU sectors.

Aon Risk in Review, 2021–22

Figure 7: Mind the gap
In your experience, how far apart have sellers and buyers been in assessing value? Are there differencesamong industries? (Investment bankers only)
100%
90%
80%
70%
60%
50%
40%
30%
20%

Overvalued

Appropriately valued

Transportation

Technology, Media& Telecoms

Real Estate &Construction

Pharmaceuticals,
Medical & Biotech

Industrials & Chemicals(including Automotive)

Energy, Mining & Utilities

DefenseConsumer & LeisureBusiness & Financial
Services (including
Computer Services)0%

Agriculture

10%

Undervalued

Financing prospects

10

While many potential buyers still have significant
capital to deploy towards M&A, 70% of dealmakers
expect financing conditions over the next 12 months
to become more challenging; that includes 30%
whose expectations are for a much more challenging
financing environment.
After a decade of holding interest rates at
unprecedented lows, central banks worldwide
are now pursuing monetary tightening. Rates
remain low by historic standards in most markets,
but against a backdrop of rising inflation –exacerbated by the Ukraine crisis – the cost offunding is likely to rise further.

“Changes in fiscal policies have already affected
the deal environment,” says the partner of a private
equity firm in the UK. “There are many deals thatwere completed in 2021 because of interest rates
being lowered by the banks.”
Shifting monetary policy could drive a rush to getdeals done, adds the managing director of a South
Korean private equity firm. “Deal timelines havebeen impacted by interest rates – dealmakers
want to take advantage of the situation before
rates rise again.”Aon Risk in Review, 2021–22

Figure 8: Tougher times ahead
How do you expect ﬁnancing conditions over the next 12 months to compare to conditions in 2021?
40%
35%
30%
25%
20%
15%
10%
5%
0%

They will be about
the same

They will be slightly
more challenging

They will be much
more challenging

A new era
However, it would be a mistake to be too gloomy
about the funding environment, with dealmakers
citing a wide range of potential sources of capital.
Almost two-thirds (64%) pick out private equity
as a primary source of potential finance over the
next 12 months, and 34% point to cash reserves,
underling the reality that both strategic buyers
and investors still have substantial sums to deploy.

11

It’s also notable that 50% of dealmakers see nonbank lenders and credit funds as a likely sourceof finance, while 22% cite debt capital markets.
Rising interest rates may not equate to any
significant decline in lending.

Still, there is no doubt that we are moving into a newera. It will require precision and pace to identify thebest strategic deal opportunities while interest rates
remain low. And new types of creative fundraising,such as intellectual property (IP) lending, which
may become a good solution for growth companies
seeking access to non-dilutive capital, are likely to
become more prominent.

Aon Risk in Review, 2021–22

Figure 9: Where capital will come from
What do you believe will emerge as the primary sources of ﬁnancing over the next 12 months?
(Select top two)
70%
60%
50%
40%
30%
20%
10%
0%

PrivateequityNon-bank
lenders/
Credit funds

Cashreserves

Debt capital
markets

Losing luster
Similarly, in the special purpose acquisition
company (SPAC) arena, where fundraising hasboomed over the past two years, it now makes
sense to rein in expectations. For now, at least,
72% of dealmakers expect SPACs to raise moremoney over the next 12 months, but the realities
on the ground can change very quickly; concern
about valuations and, in particular, tougher
regulation of SPACs, may take their toll.

12

Equity capital
markets

FamilyofﬁcesBanklendingAon Risk in Review, 2021–22

Figure 10: SPAC attack?
What do you think will happen to SPACs in the next 12 months?
70%
60%
50%
40%
30%
20%
10%
0%

Moderate decrease

No change

Already, almost a third of dealmakers (32%)
cite regulatory scrutiny as the most pressing
risk for those considering the use of a SPAC
to raise capital. A series of interventions in the
SPAC market by the US Securities & Exchange
Commission last year are inevitably heightening
concerns in this regard.

Moderate increase

Signiﬁcant increase

Equally, dealmakers point to other SPAC-related
anxieties. For example, in a volatile market, two-thirdsof respondents (66%) worry about the significant
timescales involved in SPAC fundraising and capital
deployment. And allied to that governance risk, 60%
point to both increased SPAC litigation and fears
about the quality of internal controls.

Figure 11: Regulators on the prowl
What do you think are the main risks of using a SPAC as a vehicle to raise capital (Select all that
apply/Most important)?
70%
60%
50%
40%
30%
20%

All that apply

Most important

Finding a suitabletargetClass action

Dilution of share value
due to compensation

Internal control issues

Increase in SPAC
litigation

Due diligence0%

Signiﬁcant time
gap between
agreement and closing

20%

Regulatory
scrutiny

13

Aon Risk in Review, 2021–22

Dealing with due diligence
The COVID-19 pandemic undoubtedly made due
diligence more difficult. At the height of the crisis,
dealmakers were unable to meet one anotherface-to-face, at least in person, or to travel totargets’ sights. Previously, dealmaking might havecollapsed in the face of such challenges, but digitaltechnologies, from tele-conferencing tools to virtual
data rooms, have helped breach the gap.
Still, this has required significant investment insuch capabilities, and an ongoing commitment tomaintaining robust technologies. No wonder morethan nine in 10 dealmakers (94%) say they are
now dedicating more resources to due diligenceprocesses than in the past.
This pressure is unlikely to ease. While relaxationsof COVID-19 restrictions will enable more traditional
due diligence work, many dealmakers will also lookto sustain their new tools – not least because insome cases, these have accelerated processes.

Figure 12: More resources requiredA) Considering the current economic environment, are you dedicating more resources than in the past
to due diligence processes when considering a transaction?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

14

No, we are dedicating roughly
the same resources

As for where dealmakers will deploy these additional
resources, many see the need to spend across theboard; in this research 30% of respondents say
simply that all types of due diligence are equallyimportant to them.
More specifically, 28% of dealmakers single out
commercial/market due diligence as a priority– a figure that may increase if market volatility
intensifies – while 16% point to IP due diligence.
With many deals now predicated on access toYes, we are dedicating moreresources to due diligenceinnovation and talent, this figure may also rise in themonths and years ahead.
One surprising finding is that only 2% of
dealmakers pick out cybersecurity as an area of
due diligence where they are currently paying
particularly close attention. Given their own
investment in digital tools and the mounting threat
posed by cyber-attacks worldwide, this, too, is likely
to be an area of increased focus in the future.

Aon Risk in Review, 2021–22

Figure 13: Where due diligence pressures are felt most keenlyB) Are you paying particularly close attention to any of the following types of due diligence?
No, all types of due diligence are
equally important to us
Commercial/market due
diligenceIntellectual property due
diligence
Software/technology due
diligence

Operational due diligence

Human resource due diligence

Cyber security due diligence
0%

15

10%

20%

30%

40%

50%

60%

Aon Risk in Review, 2021–22

Part 2: Risks and regulation
The good news is that, for many dealmakers, the
COVID-19 crisis is now moving into the rear-view
mirror – just 26% cite the pandemic as one of thethree most significant risks their organization will
face over the next 12 months. On the downside,
more than half of dealmakers (54%) fear the impactof geopolitical uncertainty, and 50% cite market
dislocation or disruption.

in the long term – but that uncertainty is part of thefear factor for dealmakers.

Inevitably, Russia’s invasion of Ukraine will
weigh heavily on dealmakers and markets in themonths ahead; European M&A is more likely to besignificantly impacted than dealmaking in othermarkets, but sentiment worldwide will take a knock.
It is very difficult to predict how long the conflictmay last, or what the broader implications may be

Aside from these big-picture themes, there
is also nervousness about issues such as theenvironmental, social & governance (ESG)
agenda, supply chain risk and securing data andinformation during investment processes.

Other risks are also coming to the fore. More than athird of dealmakers (34%) cite the macroeconomic
picture as of concern, as rampant inflation
forces central banks to tighten monetary policy.
Legislative/Regulatory change is an issue for 28%,
while 26% point to technology/cyber risk.

Figure 14: Risk rising – from pandemic to geopolitics
What are the most signiﬁcant risks that your organization will face over the next 12 months (select top 3)?
Political uncertainty/Geopolitics
Market dislocation or disruption
Macroeconomics/Interest rates
Legislative/Regulatory change
Technology/Cyber Risk
Pandemic/Healthcare
Competition for investment
opportunities

16

ESG/Climate change
Supply chain/Vendor governance
Data and information in
investment processes
Talent/Workforce
Aging plan/Liabilities
0%

10%

20%

30%

40%

50%

60%

Aon Risk in Review, 2021–22

An evolving rulebook
Many areas of risk are multifaceted. Regulation isa good example – cited by 28% as a concern for
their organization, the nature of this risk varies by
jurisdiction, by sector and by individual business.

Correspondingly, almost a quarter of dealmakers(24%) cite export controls and foreign direct
investment rules as one of their top two regulatory
challenges.

In an M&A context, antitrust is the area of regulationthat dealmakers find most challenging, with 50%
citing competition as one of their top two areasof concern. The growing number of mega deals –often reviewed by antitrust regulators as a matterof course – is part of the story here. But so too is
the high-profile intervention of antitrust regulatorsin the TMT sector, where there are growing calls for
scrutiny of “Big Tech” organizations.

Data protection regulation, meanwhile, is achallenge for 36% of respondents. With many
jurisdictions now following the lead set by theEuropean Union, with its introduction of the General
Data Protection Regulation (GDPR), this latter issue
is becoming a worldwide concern.

In a related area, the past year has also seen
increased scrutiny of M&A activity by regulatorsconcerned about national security or the broader“national interest”. Countries including the UK
have moved to toughen foreign direct investment
regimes, making it more difficult to pursue
cross-border deal activity in certain sectors.

The other significant area of anxiety aroundregulation is environmental issues, cited by 42%
of dealmakers. As increasing numbers of countries
introduce demanding targets for cutting carbon
emissions, the pressure is on every organization toaccount for their carbon footprint, and to reduce
it. Inevitably, many are finding it tough to comply
with new reporting requirements, as well as tomake changes within their organizations and supply
chains to lower emissions.

Figure 15: Where regulation bites
Which form of regulation do you ﬁnd most challenging? (Please select the two most important)
AntitrustEnvironmental regulations

Data protection

17
Export controls/Foreign direct
investment regimes
Labor & employment

Financial regulation

Bribery & corruption regulation
0%

10%

20%

30%

40%

50%

60%

Aon Risk in Review, 2021–22

Held to a higher standard
But the environment is just one element of ESG
more broadly, where 90% of dealmakers expect
to see increased scrutiny of transactions over the
next three years – and more than half of those
respondents expect to see a significant increase.
In part, this reflects the growing perceptionthat strong ESG performance and commercial
strength often go together. Aside from the externalpressures driving increased ESG scrutiny, research
has continued to draw firm correlations between
material ESG factors – including social issues suchas diversity, inclusion and employee engagement –and corporate financial performance.

It is also the case that ESG regimes such as theSustainability Accounting Standards Board, andgoing forward the International Sustainability
Standards Board, have shown corporate issuers
and investors how to quantify social issues more
effectively. As a result, we are better equipped today
to dig past feel-good narratives to get to metrics
that are meaningful for current and future financial
performance. And demographic shifts among theworkforce and consumers mean pressure to addressmaterial social issues is coming from the bottom up
and not just top down from investors and regulatory
bodies. The time to act is now.

Figure 16: Dealing with ESG
How do you expect ESG scrutiny to change in deals over the next three years?
50%

40%

30%

20%

10%

18

0%

Signiﬁcant increase

Moderate increase

No change

Aon Risk in Review, 2021–22

Taxing requirements
Tax risk is also on the increase, with 50% of
dealmakers warning it is now significantly moreacute to deal success than in the past – a further
40% say it is somewhat more acute.
“The value of the target company cannot be
determined accurately without knowing about
the tax risks,” warns the managing director of aninvestment bank in Canada, while the managing
director of a private equity firm in Australia adds:“We have to hire local advisers who know more
about these risks, and we then prepare a strategy
for deals accordingly.”
Certainly, 2021 saw an increase in cross-border tax
concerns. These included increased scrutiny of large
multinational deals taking place across multiple
jurisdictions and with exposure to multiple currencies,
as well as inbound foreign investment into the US,
withholding tax concerns and transfer pricing.

Figure 17: Tax risk on the rise
How much more acute is tax risk to deal success now as compared to the recent past? (Select one)
50%

40%

30%

20%

10%

0%

19

Tax risk is much moreacute now

It is somewhat more serious

Indeed, dealmakers warn of growing tax risks on
multiple fronts. More than a quarter (28%) pickout the proliferation of anti-abuse rules as theirmost pressing concern, but others include entity
classification rules and increases in tax rates.
Mitigating these risks is increasingly important.
For example, Aon’s clients continue to secure tax
insurance to remove the worry of inheriting liability forparticular known tax issues in M&A deals throughout
the world. And with the rapid speed at which deals
were being completed in 2021, there was an increasein tax risk management outside of the traditional
deal timeline, including post-closing mitigation
strategies and target-level risk management before
commencement of the bid process.

The danger posed by tax risk
is largely unchanged

Many dealmakers report increased dependence
on both talent and technology as they confront
tax risk. “We find it useful to hire expertise on atemporary basis to assess tax risks,” says the senior
vice president for corporate development at a US
corporate. “It is important to get an unbiased view
about the tax environment and the challenges specificto the target.” The partner of a British private equity
firm adds: “We use technology to assess tax risks –artificial intelligence and automated functions can help
us ascertain the actual risk level without forgetting
about any important indicators.”

Aon Risk in Review, 2021–22

Figure 18: Tax issues on many fronts
Which of the following tax-related issues is of greatest concern to you? (Select one)
Proliferation of anti-abuse rules

Entity classiﬁcations rules(e.g. S corporations, REITs, etc.)
Increase in tax rates

Global minimum tax legislation

Anti-treaty shopping rules

Employee incentive awards/
Incentives taxation
Transfer pricing
0%

5%

10%

15%

20%

25%

30%

Courtroom drama
Litigation risk also worries many dealmakers. The
biggest area of concern, cited by 26%, is litigation
related to antitrust issues, mirroring respondent’s
most pressing anxiety about regulation. That is closely
followed by labor and employment, which 22% of
dealmakers identify as the area of litigation thatworries them the most.
20

Other potential flashpoints include data protection/
IP, cited as the most concerning litigation risk by
16%, and financial disputes, singled out by 18% of
respondents.

Aon Risk in Review, 2021–22

Figure 19: Litigation risk in focus
What type of litigation creates the most concern in a deal? (Select top two and rank 1-2)

30%
25%
20%
15%
10%
5%
0%

Antitrust1

Labor and
employment

Data
protection/IP

Financial

Exportcontrols

Bribery
Environmental
and corruption

2

The tech toolbox
With other types of risk, different mitigation strategies
make sense. In particular, 44% of dealmakers saythey are currently employing some form of credit risk
technology. Of that group, 50% say they now haveaccess to a credit risk management system poweredby artificial intelligence, while 41% point to theircustomer relationship management software.

21

Such tools can help reduce uncertainty, explains
the partner of a private equity firm in the UK. “Thepandemic has had a broad impact on credit markets;
credit risk has become something of an enduring

threat over the past few years,” the executive adds.
“We cannot predict the underlying risks.”
Other respondents are keen to see further
development of technology solutions to help themin this area. “There are insufficient risk-assessing
tools in the market,” says the managing director of a
US investment bank. “From a lender’s perspective,
the current environment is increasing credit risks –although lending trends are improving, the risks ofthe pandemic still remain.”Aon Risk in Review, 2021–22

Figure 20: Putting technology to work in credit insuranceA) Do you currently have a credit risk technology in place?

60%
50%
40%
30%
20%
10%
0%

No

Yes

B) If yes, what tools are you currently using to address credit risk?

60%
50%
40%
30%
20%
10%

22

0%

AI-powered credit risk
management system

CRM software

Open-source(i.e. R or Python)

Aon Risk in Review, 2021–22

Many dealmakers worry there is still significant
work to do to get the best out of technologies
that address credit risk. More than three-quarters(76%) worry about their limited infrastructure,
while 64% say deployment has been slow and
62% cite skills shortages.
With credit risk still elevated, these problems must
be addressed. The corporate development directorof a corporate in the Netherlands says: “Operating
challenges have continued in 2022; there arecompanies in capital intensive sectors that havenot been able to revive operations completely,
which has led to higher credit risks.”
While long established, awareness of how theinsurance markets can address credit risk totransactions is limited. With a risk capacity
exceeding $4 billion, live credit insights into over
100 million discreet commercial entities and a
regulatory framework that can deliver cost ofcapital benefits, the insurance market offers
dealmakers concrete opportunities to add value
to transactions and portfolio companies. Aon has
seen the successful structured non-payment,
political risk and surety solutions on single andportfolio risks resulting in improved cash positions
by enabling short-term financing, creating offbalance-sheet solutions for transaction-related
demands for collateral, shortened cash conversion
cycles and lower cost of capital.

Figure 21: Bars to credit risk technology
What are your greatest challenges in addressing credit risk using technology? (Select all that apply)

80%
70%
60%
50%
40%
30%
20%
10%

Poor reporting

Procedural process

Lack of data orsystem limitations

Resourcing skilledworkforces

Slow model
deployment

23

Limited infrastructure0%Aon Risk in Review, 2021–22

Conclusion: Key trends for theyear to comeThis report suggests that last year’s resurgence of
M&A can be sustained, with dealmakers looking
forward to further transactions as they exploit
recovering global growth and pursue digitaltransformation. The outlook looks especiallypromising for M&A in sectors such as TMT and in
the APAC region.
Nevertheless, there are some dark clouds on thehorizon. First, it is by no means clear that the
COVID-19 pandemic is behind us. While many
countries are finding ways to cope with the crisis,some lockdowns and restrictions as the virus breaks
out on a localized basis seem likely – this is boundto impact dealmaking. In addition, Russia’s invasionof Ukraine has hugely increased anxiety about
geopolitical risk and threatens to hold back global
growth. The longer the conflict lasts, the greater the
impact on M&A is likely to be.
Then there are more specific risks. Regulation is on
the increase across several fronts. Credit markets
look more uncertain. Tax risk is rising too. Against
this backdrop, the next 12 months are likely to be
defined by four key trends.

24

Increased investment in technology.
Digital solutions played a crucial role in facilitating
M&A even at the height of the pandemic;
having seen the advantages of working this way,
dealmakers will continue to invest. Technologicalinnovation has the potential to support M&A in
multiple areas, from understanding tax and credit
risk to driving valuation models.

Enhanced use of risk mitigation tools.
With risk heightened and the outlook uncertain,
dealmakers will look for more imaginative andcreative methods of mitigating risk.
Increased financial due diligence.
Sellers continue to demand higher prices, but withan increasingly uncertain big picture outlook, andbuyers becoming more dependent on third-party deal
finance, a determined focus on the fundamentals offinancial due diligence will be crucial.
The rise and rise of the ESG agenda.
From climate change risk to social issues, ESG
considerations will play a role in every M&A
transaction. In due diligence processes, buyers will
increasingly scrutinize targets’ ESG credentials,
homing in on reputational risks as well as
regulatory concerns.

Contact Us
Gary Blitz
Global Co-CEO, M&A andTransaction Solutions
Aon+1 301 704 4640
gary.blitz@aon.com
Alistair Lester
Global Co-CEO, M&A andTransaction SolutionsAon+44 (0) 7990 780343
alistair.p.lester@aon.com
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