At the beginning of 2022, the M&A market held a lot of uncertainty coming off a successful year prior. Buyers, sellers, advisors, and investors were still determining what to anticipate in the new year and wondering how some looming policies could affect the market. Now, as we wrap up 2022, all parties are trying to do the same for 2023, taking into consideration many key factors that have slowed this year’s deal-making pace.
Rising interest rates are one of the main influencers to keep an eye on in 2023. This past year, steady increases in rates from banks to combat inflation hurt M&A activity. The rate increases have caused lending for transactions in the upper-middle market to decline sharply and have increased the cost for acquisition financing, creating the potential for sellers to be pushed into the market if rate stabilization does not occur in 2023.
Additionally, lower equity valuations have weakened the currency for buyers, providing them with fewer resources to make deals. Lower valuations have also caused hesitation from sellers who were expecting a much higher value for their businesses.
The combination of rising interest rates and lower equity valuations, along with factors such as supply chain disruption and international turmoil, are causing a slowdown in M&A activity. However, this doesn’t mean it isn’t the right time to sell.
First-time sellers and family-business owners have faced a great deal of stress over the last three years and are expected to take advantage of recent deal activity in the lower-middle market, resulting in deals and opportunities having a strong outlook in 2023. As for buyers, an increase in distressed sellers should allow for more opportunities in the private equity market. Lastly, technology-driven disruption is expected to help companies take out costs and appeal to a new customer base in the new year.
There is still much opportunity ahead in mergers and acquisitions in 2023. Quality businesses as well as the projected increase in funding from private equity will enable healthy transactions that are satisfying for all parties. Business owners need to keep an eye on controlling what they can within their businesses, including transferable value and continued profitable growth if they are considering exiting.
At Aberdeen, we take pride in helping business owners reach their selling goals. Whether you’re ready to sell or want to learn more about how we can help, reach out for a complimentary consultation so we can ensure you reach your goals in the new year.