While overall deal volume was down in 2022 following a record-breaking year in 2021, there is still promise that the M&A market could see a return to normal with the opportunity for some great deals in 2023.
Consistent and aggressive rate hikes from the Federal Reserve to battle inflation, regulatory hurdles, supply and demand imbalance, and economic uncertainty were all variables that contributed to the slowdown the M&A market experienced last year. Although 2023 is beginning with a clouded short-term economic outlook, this may be the time for executives and leaders to optimize their business portfolios and find ways to reposition themselves for increased profitability and growth.
This environment is an excellent opportunity for business owners to exercise capital discipline and ensure financial resources are utilized efficiently and effectively. Optimizing portfolios and asset use includes looking at areas where spending is unnecessary and noting areas for improvement, including liquidity, quality, diversification of customers, and working capital management. Buyers’ due diligence is more granular than ever, meaning these areas will be key indicators of whether a business will be a profitable long-term investment.
Mergers and acquisitions provide valuable opportunities for buyers as well. Lower valuations and the entry of new assets to the market can be favorable for a business looking to expand and grow its offerings and receive a better return on investment.
Public markets are currently pricing in anticipation of a halt or even lowering of Fed rate hikes toward the end of 2023. An end to interest rate hikes will serve as a signal for stability and is likely to influence an upturn in M&A activity. Rates returning to more moderate levels will encourage buyers who rely on more leverage to finance, such as private equity, to return to the deal-making table.
Observing market trends, capitalizing on the opportunity to strengthen and grow your business, and finally, having an M&A Advisor Team you trust is critical for business owners considering selling in 2023. At Aberdeen, we help business owners identify and prioritize their objectives with respect to their business, employees, and families. Contact the Aberdeen Team for a complimentary consultation to learn more about how we can help.