Foley recently hosted a webinar where Craig Roush and Jonathan Witt broke down the current U.S. Middle-Market M&A ($25 million – $250 million) trends through the third quarter of 2023.
Much has been said about the return of M&A in 2023, and while there are deals happening, it is not the boom that many expected – but there remain promising signs heading into 2024. Additionally, in this changing climate, aspects of middle-market M&A that were once uncommon have begun to standardize and vice versa. Here are some of the key takeaways from the discussion:
- Deal volume is down almost 10% YTD 2023 vs. 2022, and both volume and pricing have been in a downward trend off the peak of 2021 as parties face interest rate- and financing-driven headwinds.
- Despite the downward trend, M&A activity is still above the pre-pandemic levels of 2019, and a backlog of transactions is building that suggests M&A will be resilient heading into 2024. Buyers have record levels of dry powder, and private equity firms, strategic sellers, and family owners all have reasons to look for exits.
- The economic picture may also be brightening as we head into 2024 – inflation appears to be cooling, interest rates may be peaking, and the long-term macroenvironment appears stable.
- In the near term, credit markets continue to see challenges, with deal financing coming at higher prices and sometimes making up a small portion of the debt/equity mix.
- IPO markets, de-SPAC markets, and foreign investment in U.S. companies are all currently down, while increased buyer and government scrutiny has created additional near-term pressures.
- Representation and warranty insurance have become standard. The short-term decline in M&A activity has led to more advantageous policy terms and pricing for buyers as insurers look to fill excess capacity.