PROVIDENCE – After faltering in the end of 2022, merger and acquisition activity is expected to rebound this year, according to a new survey from Citizens Financial Group Inc. published Tuesday.
The Citizens 2023 Mergers & Acquisitions Outlook reflects results of 400 C-suite executives at middle-market companies and private equity firms with $50 million to $1 billion in revenue.
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Though rising interest rates and inflations put the kibosh on deals in the latter half of 2022, business leaders have adapted to the latest set of economic conditions, and are again looking to mergers and acquisitions as a source of growth, according to the survey.
“Much like COVID took a little while to get used to a new environment before we saw robust growth, I think the same thing is happening again,” said David Dunstan, managing director for Citizens M&A Advisors. “People are implying by the results of this survey that they have gotten used to the new interest rate-environment and have a little more comfort around doing a transaction.”
That comfort is coupled with high hopes for valuations, with 80% of companies and private equity firms believing their businesses will be worth at least as much or more in the year ahead. With these higher prices, the market is expected to lean in favor of sellers, but buyers don’t appear deterred. That’s in part because many see acquisitions as a way to grow their company amid economic headwinds.
Indeed, more than six in 10 buyers said growth was their no. 1 motivation, compared with 48% who said the same in 2022. Among sellers, the primary driver is the need for new leadership, including a lack of succession planning.
“If you didn’t sell in that 2021 peak, then now you’ve ridden about COVID, a war in Ukraine, supply chain issues, raw materials challenges … if you’re an owner of a business, you may be tired and looking to get out,” Dunstan said.
While middle-market companies were optimistic about their own performances, they know the tough times aren’t over. Nearly two-thirds have been troubled by inflation, while half lamented the rising interest rates.
Although Rhode Island has historically been a “first in, last out” state in prior economic recessions, business leaders don’t seem any more uncertain than their counterparts nationwide, said Keith Kelly, Citizens’ Rhode Island president. That’s because Rhode Island companies are doing business across the country, and even the world, making the local economic environment less important, Kelly explained.
“Rhode Island companies are looking to grow, and they see M&A as the way to get there,” Kelly said, adding that local clients were considering deals across the region and nationally.
Another concern: how fast it will take deals to close? Despite a well-stocked pipeline of sellers and interest from buyers, both sides were uncertain they would complete a deal by the end of 2023. That suggests there is still some wariness lingering from the volatility that characterized 2022, Dunstan said.
Certain industries are expected to fare better than others, too. The strongest forecasts were for aerospace/defense and business services – Kelly also named industrial companies as a strong contender in Rhode Island – while transportation and logistics companies were not expected to benefit from higher valuations.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
