Despite geopolitical unrest, the demand for M&A transactions globally is expected to grow in 2023:
The global market for mergers and acquisitions is expected to bounce back this year from a geopolitically turbulent 2022, based on lessons learned from the COVID-19 response, according to a report published earlier this month by law firm Herbert Smith Freehills LLP.
"There remain good reasons that transactions have proceeded amid a turbulent environment. These range from the continued hunt for transformational deals by strategics, the deployment of more equity deals by funds and availability of private credit, and the opportunism of well-positioned buyers,” remarked Gavin Davies, the head of global M&A at Herbert Smith.
As we have documented before, the reality is that the factors driving middle market and lower middle market deals in the U.S. were largely unscathed by issues impacting global deals in 2022. In fact, as we said earlier this month:
It was a tough year for dealmakers. Inflation, geopolitical tensions, and a lack of liquidity squeezed the mergers and acquisitions market. Global M&A deal volume has declined 17% compared to 2021, according to Refinitiv data. All sectors have declined. However, there has been a noticeable rebound in the smallest M&A deals.
“We expect to continue to see this strong flow of smaller deals throughout 2023, as CEOs remain cautious as a result of ongoing geopolitical tensions and heightened uncertainty,” says Andrea Guerzoni, EY’s global vice chair of strategy and transactions. “Deal financing challenges on the back of higher interest rates, increased costs of financing, and regulatory scrutiny will also make smaller deals more attractive.”
Now keep in mind that most analysts define middle market deals as being valued below $500 million and lower middle market below $100 million; so when you read “smaller” deals, keep those ranges in mind. The great news is that these ranges are by far the lions-share of privately held businesses in the U.S.
Now most of our readers own a middle market-sized business, so it is vital that you realize that when you read in the business press about interest rates hammering M&A transactions, keep in mind that these are usually very large, highly leveraged deals where debt is a significant portion of the transaction.
Our deals are largely not as impacted and that is great news for all of you. If you are prepared to move while market conditions are still favorable in the middle market, 2023 could be an optimal time frame.
Some time has likely passed since you first attended a Generational Growth and Exit Strategy Conference. If so, or if you have never attended one, the next few months would be optimal for you to learn about current market conditions and what we expect to see over the next 12-15 months in the M&A arena. To find a conference in your area, please use this link or call us at 972-232-1121 and we will be glad to provide you with further details.
And one final thought: Remember that international buyers LOVE U.S.-based companies. There literally is no safer place to invest in than the U.S. International buyers know that despite our political divides and rising interest rates, the U.S. is a safe haven for investment and always will be!
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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