In 2021 and 2022 the mergers - and - acquisitions market experienced tremendous activity with sellers experiencing record high multiples for their businesses while at the same time, experiencing higher than normal bottom lines from a recovering economy, volatile supply chain, and record inflation.
In 2023, the mergers-and-acquisitions market, with deal values and volume slowing down from post pandemic highs has cooled down. Deal valuations in the mid-size market segment have leveled off and lowered in some cases. The FED also continues to raise interest rates which make deals more costly to finance, which will have an impact on current and future valuations. Inflation has slowed but is still a presence and a factor.
With all the uncertainty facing a slowing economy, high interest rates, and inflation, there are still a few key facts:
- 1. Buyers still want to acquire. Companies still have the capital to do deals as well as the desire to create opportunities to improve strategic position. Strong bottom lines have continued, which gives the confidence in a high interest rate environment to continue with their acquisition strategies. With market multiples cooling, it also presents opportunities to pay less than in previous years helping improve ROI projections.
- 2. Sellers still have the appetite to sell. While the market isn't quite as strong a sellers' market than in previous years, valuations are still strong compared to pre-pandemic levels and sellers are still willing to exit. The notion that they are being sold at the market bottom is not there.
- 3. While M&A activity as a whole has slowed when factoring all industries, this is short term. Teams are doing the much-needed work in M&A strategy, sector screening, and due diligence to prepare to act quickly when opportunities present themselves. When macroeconomic conditions start to improve, most importantly inflation and high interest rates, the expectation is for global deal activity to start to rise which will continue to hold and in cases raise deal valuations.
