M&A Market Update

M&A Deal Update Q3 2022 - M&A Deal Update Q3 2022

After a record year in 2021, the global M&A market that started 2022 strong has ebbed from its torrid pace, while the middle market has proved resilient.

The two-year M&A boom has lost some steam

In Q3 2022, the global markets recorded 8,258 M&A deals worth $544 billion, compared to the 9,605 deals worth $1.05 trillion recorded in the same quarter of 2021.

Rising interest rates, persistent inflation, and the prospect of slower economic growth slowed the pace of deal-making.

The year-to-date total of $2.7 trillion in M&A deal value is 33% lower than over the same nine-month period in 2021.

Despite a slowdown in global M&A, activity in the middle market remains well above historical levels.

Several sectors are experiencing increased investment

Even with the slowdown across the M&A market, investors have ramped up investments in several industries, including business products and services, aerospace and defense, and supply chain.

Deal count in business products and services surged in Q3 to 2,399 fueled by strong interest from large strategic buyers and private equity investors.

However, despite increased investment by deal count, investment by deal value was down across all sectors as downward pressure on valuations persisted.

In the middle market, demand for industrials, technology, consumer goods, healthcare, and business services businesses remain particularly strong.

Quarterly Global M&A Activity by Deal Volume and Deal Value Since 2018 - Quarterly Global M&A Activity by Deal Volume and Deal Value Since 2018

Drivers of Continued Deal Activity

Companies will continue to look towards strategic M&A to accelerate growth, stimulating a competitive market

Scarcity of large, well-performing businesses will contribute to elevated levels of contested transactions.

While economic headwinds have compressed valuations, middle market multiples remain unchanged or slightly higher than pre-pandemic levels.

“Take-privates” have become more popular as public company valuations have fallen much more than private ones.


Highly active private equity players will continue to contribute to the positive outlook

Add-ons are a big draw for private equity, translating to more opportunities for lower middle market businesses.

While private equity-backed M&A dollar volume is down 25.5% year-over-year, less than the overall 33% decline in deal value, private equity’s share of the overall M&A dollar pie climbed to 23.3% from 20.5%.

This uptick in private equity activity comes as PE funds continue to sit on ample amounts of “dry powder” which they will continue to look to deploy.


Strategic and financial buyers are looking to take advantage of volatile conditions

Deal activity continues to be driven by factors such as liquidity, the availability of debt, and economic sentiment.

Many business owners are coming to market earlier than originally intended after weathering pandemic-related restrictions.

The middle market saw a nearly 20% increase in deals marketed compared to Q3 2021.

Higher borrowing costs have created an opportunity for cash-rich buyers to acquire firms that are cyclically, but not secularly, under pressure.


Buyers are willing to pay premiums for strong, resilient companies

Amidst increased uncertainty surrounding inflation and geopolitical tensions, many have been predicting the economy at a greater risk to fall into a recession.

Widespread labor shortages have remained a frustrating challenge for companies in virtually all sectors since the height of the pandemic.

Consequently, buyers are still paying premiums for companies with growing end markets, durable profit margins, good management teams, and customer diversification.

U.S. Middle Market Deal Volume - U.S. Middle Market Deal Volume
U.S. Middle Market EV/TTM EBITDA Multiples - U.S. Middle Market EV/TTM EBITDA Multiples


* Sources: Axial, Wilcox Investment Bankers, Refinitive, Axios, Global Data, Pitchbook

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