Citizens M&A Outlook Optimistic Despite Headwinds
Citizens’ 2023 M&A Outlook indicates a positive sentiment among U.S. middle-market companies and private equity firms, signaling a return to pre-pandemic merger and acquisition trends. The survey of 400 leaders reveals that over 80% anticipate stable or improved company valuations in 2023. Despite economic headwinds like inflation and rising rates, 84% of firms have successfully passed cost increases to customers. M&A is seen as the primary growth driver, with 62% of buyers motivated by growth. Additionally, 40% of companies are currently considering selling, reflecting a robust market environment.
- Over 80% of companies expect stable or higher valuations in 2023.
- M&A seen as the primary growth driver for companies, with 62% of buyers motivated by growth.
- 84% of firms have successfully passed cost increases to customers.
- 40% of middle-market companies are currently involved in selling activity or open to it.
- Two-thirds of middle-market companies report inflation complicating operations.
- Nearly half of firms cite rising interest rates as a challenge.
After peak of 2021 and disruption of 2022, survey participants have positive outlook for 2023
“Companies exited the pandemic era with a newfound resilience and, in many cases, better finances and more experienced management,” said
After a year of significant price adjustments, more than 80 percent of
Macroeconomic uncertainty was a dominant theme of late 2022, but most middle-market companies and PE firms expect conditions to improve in 2023.
Companies do acknowledge the headwinds, however. Two-thirds of middle-market companies say inflation is making business operations more difficult, while nearly half cite the challenge of rising rates. Labor market challenges, geopolitical instability and commodity prices are also high on the list of concerns. Still, there’s evidence that companies have adapted well to the environment. Eighty-four percent say they have been able to pass some, or all, of their cost increases on to customers, a contributing factor for their confidence in the year to come.
M&A as a Growth Driver
Most middle-market companies said they expected slower economic growth in the year ahead – but they remain optimistic about their own performance. As economic challenges persist, management teams increasingly say they are looking to M&A as the primary growth driver for their companies, as opposed to organic growth.
Among middle-market company buyers, growth is by far the top reason for acquiring a company. Sixty-two percent of buyers named growth as their M&A motivation, compared with 48 percent the prior year. Sellers also point to growth as the main motivation, with 35 percent saying they seek a sale because of strategic growth opportunities, though it ticked down from 40 percent in last year’s survey. In 2023, the leading motivation bringing sellers to market is the lack of a succession plan and need for new leadership.
In terms of sector valuations, outlooks ranged considerably for 2023, though respondents said they anticipate higher valuations across every sector but transportation and logistics. Aerospace/defense and business services garnered the most bullish valuation forecasts. Healthcare was also close to neutral, a marked change from last year when it was the sector with the most bullish valuation outlook.
High-Performing Sellers in Driver’s Seat
Though valuations have retreated from 2021 peaks, middle-market companies and PE firms agree that the market environment still slightly favors sellers. With buyers on the lookout for growth, high-performing sellers could continue to have an advantage.
In terms of deal flow expectations, about 20 percent of PE firms said they anticipate lower deal volumes than in 2022 – but 34 percent said they expect increased volumes. Of those PE firms who anticipate increased deal flow, half cited an increase in PE-backed assets coming to market. A third also pointed to improving economic conditions and lower interest rates as possible tailwinds for deal flow.
More buyers and sellers showed some uncertainty about the likelihood of getting a deal done this year. However, among those sellers who indicated they were somewhat or very confident, there was a notable shift toward “very confident” – 28 percent of sellers compared to 15 percent in the prior year.
Indeed, the pipeline of sellers looks to be well-stocked. Forty percent of middle-market companies indicated they were currently involved in selling activity or open to considering it in 2023, identical to the prior year survey and up from the pandemic low of 33 percent of companies. Meanwhile, 53 percent of companies say they are current or potential buyers, up from 45 percent last year.
Another shift in this year’s responses was higher demand for advisor expertise on deals. There was a significant uptick among both sellers and buyers who look to an M&A advisor as an expert sounding board. As in prior years, the most-cited reason for using an M&A advisor was to help get the best deal price.
The survey was conducted among
Business executives at 276 middle-market firms and 125 PE firms who are directly involved in decision-making related to mergers and acquisitions (owners/partners, CEOs, presidents and other C-level executives and directors) completed a phone or web-based survey between November and
Citizens M&A Advisory specializes in middle-market mergers and acquisitions. Citizens combines sector intelligence with a client-focused approach to realize our clients' true value. The Citizens team has more than 150 M&A professionals specializing in a range of industries across
For more information, please go to the Citizens website.
About
This is for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material contains forward looking statements and there can be no guarantee that they will come to pass. Information contained herein is based on data from multiple sources and Citizens makes no representation as to the accuracy or completeness of data from sources outside of Citizens.
©2023
View source version on businesswire.com: https://www.businesswire.com/news/home/20230110005172/en/
frank.quaratiello@citizensbank.com
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