The landscape of mergers and acquisitions (M&A) and private equity has been evolving, shaped by a range of factors and market dynamics in recent years. This blog post delves into some of the key trends and outlooks in this arena.
Private Equity Market Dynamics
According to MergerMarket, 64% of private equity investors plan to make four or more acquisitions in the next year, compared to 34% of corporates. PE firms are resisting selling off portfolio companies at lower deal values, with PE divestitures down 25% in 2022.
Ernst & Young’s Private Equity Pulse (Q3 2023)
This comprehensive report highlights significant trends in private equity market activities. While it does not specifically address Quality of Earnings (QoE) reports, the overarching market dynamics it presents are vital for understanding the utilization of such reports in private equity transactions.
M&A Sector Overview & Divergence in Deal Sizes
European M&A Involving Private Equity
There was a slight decrease in the proportion of European M&A deals involving private equity, from 39% in 2021 to 36% in the first half of 2023.
Given the economic headwinds, valuations have declined in the U.S. Through March, Pitchbook reported EBITDA multiples of 9.1, down one full turn from 10.1 in 2019, when multiples peaked. Deal counts increased in 2021 and 2022 over prior periods. Q1 2023 deal counts were down (valued at about $1 trillion) amid widespread discounting.
A notable divergence is observed in the M&A market between larger, transformational deals and smaller, mid-market ones. This trend suggests different strategic approaches and market dynamics at play across deal sizes.
Quantitative Data on M&A Market Divergence ~ Larger vs. Mid-Market Deals
The M&A market has witnessed a significant divergence between larger, transformational deals and smaller, mid-market ones. This trend is reflected in various quantitative data.
Decrease in Deal Volumes
Overall, there was a decline in global M&A volumes by approximately 4% between the second half of 2022 and the first half of 2023, indicating a general slowdown in the market.
Larger deals often have more transformational impacts on the companies involved. While specific quantitative data on the size of these deals was not provided, the general market trend indicates that larger deals are being pursued for strategic growth and market expansion.
Mid-market deals, on the other hand, tend to be smaller in scale but are crucial for market consolidation, strategic niches, or regional expansion. These deals are more frequent but may involve less capital compared to larger, transformational deals.
The differing nature of large and mid-market deals suggests varying strategic approaches. Larger deals are likely driven by factors such as market leadership, diversification, and significant strategic shifts.
Mid-market deals are more focused on specific market opportunities, consolidation in niche sectors, or regional growth strategies.
Global M&A Trends (2023)
A notable 4% decline in global M&A volumes and a 12% drop in values were observed in the first half of 2023 compared to the latter half of 2022. This trend underscores a slowdown in the M&A sector during this period.
Energy Transition Deal Volume (2021-2023)
This sector has shown robust growth, with a 12% compound annual growth rate (CAGR) from 2017 through 2020, continuing its upward trajectory through 2023.
Top 10 M&A Deals in 2023
The total value of these deals was $38.2 billion, reflecting a significant 54.7% decrease from $84.3 billion in 2022.
U.S. M&A Activity
M&A volumes in the U.S. experienced a 24% year-over-year decline in the first three quarters of 2023.
The divergence in the M&A market reflects the different strategic approaches and market dynamics at play across deal sizes. While larger deals are geared towards transformative outcomes, mid-market deals are focused on targeted growth and consolidation strategies.
About A.J Arenburg Financial
A.J. Arenburg Financial is a boutique investment banking and advisory firm focused on lower middle market businesses. We work directly with owners to prepare, position, and execute transactions in a way that holds up under real buyer and lender scrutiny.
Our clients are typically generating $10M to $250M in revenue and $2M to $25M in EBITDA across industrials, construction, business services, and select healthcare and technology sectors. Many are founder-led or family-owned businesses navigating growth, liquidity, or succession decisions.
We advise on sell-side M&A, business valuations, financial due diligence, and capital strategy. This includes Quality of Earnings analysis, normalization of EBITDA, working capital assessment, and building financials that align with how buyers and lenders actually evaluate risk.
Beyond transactions, we support owners ahead of a sale through exit planning and fractional CFO work. That means cleaning up financials, identifying gaps, and positioning the business properly before going to market.
Our approach is hands-on and execution focused. We are not a volume shop. Every engagement is built around presenting a credible, defensible story to buyers and driving a process that gets done.
Disclosure
The information provided by A.J. Arenburg Financial Equity Research Division is for educational purposes only and is not intended to serve as investment advice. The analysis, views, and opinions expressed represent our assessments as of the date of publication and are subject to change at any time without notice. This document is not a recommendation to buy, sell, or hold any specific securities.
Investors should consult with their financial advisors before making any investment decisions. A.J. Arenburg Financial Equity Research Division and its analysts are not registered investment advisors, and we do not provide personalized or individualized investment advice. Any investment decisions made by the reader based on information contained herein are the sole responsibility of the reader.
The contents of this report should not be construed as an express or implied promise, guarantee, or implication by A.J. Arenburg Financial Equity Research Division that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Past performance is not necessarily indicative of future results. Investments in securities are subject to market and other risks and there is always the potential of losing money when you invest in securities.
Neither A.J. Arenburg Financial Equity Research Division nor any of its affiliates, directors, officers, or employees bear any responsibility for any investment decisions made on the basis of information in this report. The reader must independently evaluate the economic risks and merits of any investment decision.
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Sources
- fintalent.io – M&A Trends 2023: Latest Mergers And Acquisition Trends
- pwc.com – Global M&A Industry Trends: 2023 Mid-Year Update
- mckinsey.com – The energy transition: A region-by-region agenda for near-term action
- spglobal.com – M&A Insights | S&P Global Market Intelligence
- bcg.com – 2023 M&A Report: The Regional Perspective
- mckinsey.com – Global Energy Perspective 2023
- Mergers and acquisitions trends for 2023 and beyond