M&A Advisory Outlook for 2023

Are we in for a year of robust activity when it comes to mergers and acquisitions and do buyers or sellers hold more cards these days? Two industry experts dove deep into the subject for a recent webinar.

You can hear Joe Hellman’s insights, who leads Redpath’s M&A practice, and Mike Hirschberg, Director at Northborne Partners, for middle market companies and investors considering transactions this year by watching the webinar here.

These are some of their high-level takeaways. 

The Uncertainty of Late 2022 is Subsiding

Buyers took a more cautious approach in the closing months of 2022. Higher interest rates and macroeconomic uncertainty weighed down the market. Both Joe and Mike saw components of deals that tilted more in favor of buyers in the last quarter of 2022. However, both already see signs that buyer favorability is moderating and shifting toward a balance.

Additional Resources:

Guide to selling a business

Guide to buying a business

No More Free COVID Passes

The pandemic is in the rearview mirror and investors are retightening their expectations when it comes to performance. People are looking for red flags in a QofE and want to know they are addressed in the due diligence.

Joe’s advice is for sellers to really know their numbers and what is driving them. For instance, a company may say they have been able to pass along price increases on raw materials or labor to their customers. But business leaders must know if they have been able to maintain the same margins, or if the sales numbers just look good because prices have increased while the volume has not followed the same trend.

Trends Point to Increased Activity

Many investors and corporate development teams are sitting on a lot of “dry powder” and looking for good opportunities to use it, says Joe. Historically, private equity has been able to be more nimble than corporate development. However, with interest rates high, a buyer who has enough cash on their balance sheet to pull off a deal without additional financing is potentially at an advantage. Also, both Joe and Mike see private equity firms trying to hone in more on their “thesis” and primarily go after opportunities that align well with their specific approach to investing.

At the same time, more and more baby boomers are looking to sell and retire. Other business owners are just plain exhausted from dealing with the pandemic, price increases, labor shortages, and inflation over the past few years. This has more owners looking for investors who want to partner with them and relieve some of the stress.

Get Your Process and People Right–Early

Engaging both legal counsel and an M&A advisor early will help a business owner prepare and increase chances of a successful and smooth transaction. Mike advises sellers to provide draft purchase agreements. This establishes the structure and terms of the deal and minimizes tax issues.

Both Mike and Joe have seen that in-person meetings have come roaring back. Investors want to meet leadership teams face-to-face again and really get to know the people they will be working with.

Consider More 

The “conventional wisdom” has been thrown out in many parts of society in recent years. People considering a transaction today need to have a broader view of the marketplace than they did just a few years ago.

Mike advises both investors and sellers cast a wider net than they have historically as well. In general, Mike and Joe agree engaging more parties in the process leads to better results for both sides. Strategic acquirers are better positioned to buy companies in sale processes than in years past. 

If you want more insider information from experts in the M&A field, check out The Transaction Abstract podcast.