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Mid-Year M&A Update 2023

07/12/2023 Ely Friedman


For companies making less than $250MM in annual sales, M&A Volume is down approximately 50% from a year ago. No sector is immune to the reduction in deal volume, including traditionally safe industries such as healthcare. Despite the lack of activity, there are still plenty of quality companies having successful exits.

Despite overall deal volume being half of what it was a year ago, deals are still getting done.  Sellers continue to sell for a variety of reasons. Sellers are retiring and owners are deciding to reduce their personal stress and financial risk in owning their own business.

Valuations have come down from their peaks in 2021 and are now back in line with historical trends we experienced pre-COVID. This decline in valuations is impacting larger transactions for companies greater than $250MM but is also having a smaller impact on lower middle market transactions. This is driven by the higher interest rate environment, perceived future recession, and slower growth rates from the underlying companies themselves.

Today, private equity is driving deal activity. The need to deploy capital and invest in businesses influences this behavior for the benefit of sellers. Much of the private equity activity is for smaller add-on acquisitions.

Activity is trending in the right direction based on several surveys.

What does all this mean? The current level of M&A activity is more to do with supply than demand. There are plenty of eager buyers waiting on the sidelines. The buyer’s higher cost of capital is pushing valuations down but only marginally relative to historic levels.

1. M&A volume is down.

2. Deals are still getting done. No sector has been immune.

3. Quality companies are transacting.

4. Valuations are down, but they are more in line with historical trends.

5. PE is currently driving the activity, the need to deploy drives this behavior.

6. Based on surveys, activity is trending in the right direction.

What does this data tell us?

> M&A activity decreasing is more to do with supply than demand.

> There are plenty of eager buyers waiting on the sidelines.
> The buyer’s math has changed given cost of capital increases, which has pushed valuation down.
> Valuations being down are relative to historic records.

For any questions related to this article or, for guidance on the sale of your business, contact Ely Friedman at efriedman@vlcpa.com or 800.887.0437.

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