2022 Year In Review and 2023 Insights

First of all, I’d like to give a shout out to all of our team members for the dedication that it took to serve clients on over 500 deals with over $9.5 billion in value in 2022. We have a tremendous team that does a great job of working together to serve our middle market clients. Thank you!

Middle market M&A is constantly evolving, and 2022 was no exception. Some key observations we noted from 2022 include –

• Expansion of the due diligence scope – we were asked to perform more IT/cyber due diligence than prior years. This was driven but the increased use of R&W insurance along with the ever-evolving IT environment and associated risks. HR due diligence also became more common in 2022.
• Deal timelines were extended, especially late in the year. The pace of a deal compared to 2021 materially slowed as we moved throughout 2022. More scrutiny during due diligence drove longer timelines that increased the probability of re-trading and dead deals.
• The further we move away from the heart of COVID, buyers are able to better assess the financial impact of COVID and develop a better expected baseline going forward. Sellers are being forced to re-evaluate valuation expectations if COVID bumps are proving to be unsustainable.
• Given the significant buy side activity the last few years, PE groups and other investors are shifting some of their focus to value creation at the portfolio company level. Digital transformation initiatives are one value add activity that’s growing in popularity.

As we move forward into 2023, there appears to be much more uncertainty in the overall M&A market compared to the prior years. The headlines are focused on tech layoffs, a stalled real estate market, rising interest rates, slowing deal volumes in the upper market and many other negative stories. While these issues definitely present challenges, we’re still bullish on overall middle market activity. Companies with less than 250 employees continue to create jobs that more than offset the high profile, large company lay-offs. Deal volumes may be choppier on a monthly basis compared to the steady, consistent volume we’ve all seen recently; however, the macro trends of baby boomer sellers and significant private equity dry powder will continue to drive deal activity.

How we can help

CLA’s deal services team can help you through all phases of your investment life cycle, including buy and sell side due diligence and post-merger integration. Our industry led portfolio services team can help private equity owned businesses with assurance, tax, outsourcing, and other value creation needs.