Evening Brief – 08.24.23
Improved Outlook on M&A Deal Volumes
More than 80% of US investment banks and private equity firms anticipate a comeback in deal activity over the next 12 months, according to a survey by international management consultancy CIL for its Mid-Market M&A Pulse Check 2023.
The improved confidence in the economic outlook is fueling the favorable sentiment among the 110 respondents.
While 43% of respondents report ‘very low’ or ‘low’ deal activity so far this year as a result of a rapid rise in interest rates, which has curtailed debt accessibility and escalated costs faster than expected, 77% expect a shift to a buyer-favorable market to continue over the next year as the market recalibrates post-Covid, resulting in more realistic valuations that challenge sellers’ expectations.
Buyers, on the other hand, are in a better position, able to take advantage of the lower valuation expectations and pursue investment possibilities with caution.
Excessive value expectations (47%) and economic and market uncertainty (45%) were recognized as the two most significant challenges facing their business in 2023.
This was followed by a lack of high-quality assets (38%), difficulty accessing finance and high interest rates (29%), and a lack of adequate execution resources (24%). A further 18% cited high investment barriers, while 8% blamed a lack of dry powder.
The findings indicate that investors continue to prioritize a variety of value creation tactics in order to protect investments and optimize returns, particularly in times of market volatility.
More than half (52%) stated buy and build was their top strategic priority, while 38% said regional expansion was their top priority.
Operational improvements and commercial effectiveness were both highlighted as priorities, with 36% of respondents naming each as a top value-creation approach.
New offering development was chosen as a strategic priority by approximately 31% of respondents, while pricing improvements was chosen as one of the top two strategic priorities by a minority of respondents (7%).
Respondents are mainly supportive of the Federal Reserve’s present monetary policy, with 54% saying it should remain unchanged, 23% saying it should tighten, and 23% saying it should ease when the economy shows signs of stabilization.
There is a more cautious approach to fiscal policy, largely motivated by inflationary fears, with 47% believing it should remain unchanged and 39% believing it should tighten.