CalCap M&A Market 2023 Review & 2024 Outlook

North American M&A Ends 2023 Down 13%

According to Pitchbook, North American M&A peaked in 2021, declined in value 25% in 2022 and declined an additional 13% in 2023 for a cumulative drop from the 2021 peak of 35%. 2023 was the third softest year in the past ten about equal to 2017.

North American M&A Ends 2023 Down 13%

Factors contributing to the decline include:

  • The threat of recession,
  • The impact of inflation on financial performance in many sectors,
  • Tight credit conditions; and
  • Higher for longer interest rates.
    The impact on private equity was even more severe than the overall M&A market
    mostly because private equity acquisitions rely more on debt financing.
Pitchbook 2023 Annual U.S. Private Equity Breakdown

The value of U.S. private equity transactions also peaked in 2021 and declined in value 29% in 2022 and an additional 23% in 2023 for a cumulative drop from the 2021 peak of 46%.

Lower Mid-Market PE Valuations Drop Below 7x

According to GF Data, PE Lower Mid-Market ($10-$250MM in value) multiples dropped in 2023 but the variations are more pronounced in the quarterly data.

Lower Mid-Market PE Valuations Drop Below 7x

Credit Markets Impact on M&A

With the Fed slowing down its rate hikes, activity slowly began to rebound in the 2nd half of 2023, although M&A remained subdued while refinancings and recaps increased.

loan vloume

By the end of 2023, lenders required greater than 52% equity contributions for PE acquisitions hindering investors’ ability to generate attractive target returns.

GF Data 3rd quarter

Lower leverage multiples also contributed to lower deal values and a drop in deal count. According to GF Data, buyers in lower mid-market transactions were able to raise on average only 3.5x EBITDA in total leverage in 2023.

2024 M&A Outlook Looks Very Favorable

We agree with most industry participants who see a strong market for M&A in 2024.

  • Inflation coming down to the Fed’s target – latest PCE at 2.9%
  • Much lower threat of recession – Q4 2023 GDP was over 3%
  • Interest rates – In Dec 2023, Fed announced intention to lower by 75 bps in
  • Seller expectations starting to adjust
  • Continued availability of capital – Corporate balance sheets and Private
    Equity Dry Powder remains robust
  • Aging baby boomers continue to need an exit plan


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