US Mid-Market M&A Deal Volumes Will Materially Increase By The End Of 2023

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Over 80% of respondents anticipate deal volumes will increase in the next 12 months.

CIL, the international management consultancy, has published its US Mid-Market M&A Pulse Check 2023 which is based on research with 110 respondents, the majority of whom work for US investment banks and private equity firms.

The Pulse shows that the rapid escalation of interest rates has curtailed debt accessibility and escalated costs quicker than expected, resulting in 43% of respondents reporting ‘very low’ or ‘low’ deal activity so far this year, 25% said it was about average and 32% said it was high – a figure that is much lower than in previous years. 

However, the majority expect a rebound in deal activity over the next 12 months, with over 80% anticipating that deal volumes will materially increase by the end of 2023.  This positive sentiment is fueled by improving confidence in the economic outlook.

Transition To A Buyers’ Market

The research shows that 77% of respondents expect the swing to a buyer-favorable market to continue through the next 12 months as the market undergoes recalibration post-Covid, resulting in more realistic valuations that challenge sellers’ expectations. In contrast, buyers are positioned advantageously, able to leverage these more dampened valuation expectations and adopt a discerning approach when pursuing investment opportunities.

Dealmakers Are Facing A Wider Range Of Headwinds

When asked about the two biggest challenges to their organization in terms of being able to get deals done, excessively high valuation expectations (47%) and economic and market uncertainty (45%) were cited as the key obstacles in 2023.  This was followed by a lack of quality assets (38%), difficulty accessing debt and high interest rates (29%) and the lack of available resources to execute (24%).  A further 18% cited stringent investment hurdles and 8% said a lack of dry powder.

Value Creation

The results show that investors continue to prioritize a variety of value creation strategies to safeguard investments and maximize returns, particularly in heightened market uncertainty. Respondents were asked to choose the top two strategies they were prioritizing to drive value creation within their investments:

  • Over half (52%) said ‘Buy & build’ was strategic priority, coming out on top.
  • 38% picked out ‘Geographic expansion’ as a strategic priority.
  • ‘Operational improvements’ and ‘Commercial effectiveness’ were both highlighted as a priority, with 36% of respondents identifying each as a top strategy to drive value.
  • 31% picked out ‘New offering development’ as a strategic priority.
  • ‘Pricing improvements’ was also chosen as one of the top two strategic priorities but by a minority of respondents (7%).

The Federal Reserve’s Monetary And Fiscal Policy

As the economy shows signs of stabilizing, respondents are generally supportive of the Federal Reserve’s current monetary policy with 54% saying that it should stay the same, 23% saying it should tighten and 23% saying it should loosen. There is a more cautious approach to fiscal policy, likely driven by concerns surrounding inflation, with 47% saying it should stay the same, but 39% are of the opinion it should tighten.

Axel Leichum, Partner and leader of CIL’s North America operations, comments:

“Our Mid-Market M&A Pulse Check shows that dealmakers are facing a wider range of headwinds than previous years, with access to debt and lack of quality assets becoming an increasing challenge to getting deals done. However, private equity and investment banking professionals are optimistic in the near term about M&A activity across the US, with most expecting a tide reversal in the level of deal activity by the end of 2023.”

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About CIL:

CIL is a leading management consultancy serving clients in high-growth, international markets. It provides strategy consulting, value creation and transactional support to business leaders, business owners and investors.