AI, BNPL, and more are shaping M&A
Corporate Advisory Solutions, LLC
More than 40 years experience providing investment and merchant banking services to the tech enabled OBS sector.
While it comes as no surprise, Q1 2023 did not bring the best news for the OBS sector. Economic uncertainty, policy changes, and rising interest rates caused M&A activity to slow down. But don’t despair just yet. Our team of experts predicts that the tide will soon turn, and we will witness a surge of deals in the next 6-12 months. ?
There are a few elements backing up this prediction. The way we see it, companies will either accept the current reality of the economic environment—and therefore seller expectations will rationalize, and they’ll proceed with M&A events—or we will get back to an environment where interest rates stop hiking with regularity. We recognize the potential for one last rate hike in May but anticipate that it will be followed by a period of holding steady. There is undoubtedly pent-up M&A demand, and if our predictions hold true, it is just a matter of time before we return to some “Goldilocks” conditions.? ?
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However, the banking contagion (the second and third largest by asset value bank failures) that dominated headlines in March 2023 created another wrinkle. Now, traditional institutions that provide lending support to finance M&A activities are facing a challenge. Smaller banks are seeing large outflows of money as depositors flock toward what they deem to be “too big to fail” institutions.? ?
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Though one might assume the net effect on the banking sector would be neutral, smaller banks are facing extreme pressure to retain deposits and fund loans/investments/etc. In other words, the credit crunch has commenced. We will delve deeply into how this may affect the ARM, CRM, and RCM sectors further down in this newsletter.??? ?
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Right now, I’d like to highlight some exciting professional AND personal news. Corporate Advisory Solutions is honored to be celebrating our 10-year anniversary!? ?
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When Mark and I started CAS all those years ago, we took the “polar bear plunge” into business ownership and never looked back. We told ourselves we are going to build a firm that has a great culture, with transparency at its core, and is centered on offering clients our quality services. Those values of hard work, integrity, and focus have gotten us where we are today, and they will continue to help us evolve and grow. ?
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We could not be prouder of everything we have accomplished these last ten years and look forward to serving our clients and the tech-enabled outsourced business services vertical for many more decades to come!? ?
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The sun is shining longer, the weather is getting warmer, and the flowers are blooming. That can only mean one thing...it’s intern season! Our team recently brought on three new co-op interns—Zoe, Josh, and Simon—who will be with us through the end of the summer. It really is the most wonderful time of year here at CAS!? ?
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ARM Industry Facing Challenges, Consumers Turning to Point of Sale Credit for Necessities.?
As we mentioned in our opening letter, ARM M&A activity is down in the first quarter of 2023 compared to both Q4 2022 (deals getting done for year-end) and Q1 2022. But that is not the only thing down this year. In contrast to 2022, American taxpayers are looking at a much smaller average tax return refund balance—11% smaller to be exact. Couple that with the previous year’s “pull through” or cleanup of older debts with stimulus funding/government tax credits, it is easy to fathom why liquidations are down across nearly all consumer-based asset classes.? ?
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When you factor in the position of a consumer today and the historic period of inflation we are living through, these currents impacting the ARM vertical make sense.? ?
Potential legislative enforcement and sector maturity may cool M&A this upcoming year.?
Relative to previous years, and much like nearly every other industry, the revenue cycle management (RCM) vertical faced a decrease in M&A activity, particularly in terms of deal count in Q1 2023. Nonetheless, some larger transactions (i.e., Alpine Investors investing in Medusind) drove up overall deal value.? ?
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This dilatory showing could be due, in part, to legislation at the state level taking the reins on debt enforcement. There have been a variety of bills recently introduced by state governments regarding medical debt specifically. This has become a hot button item over the last few years and shows no signs of slowing down as we head into an election cycle.?? ?
The AI Revolution: How Chat GPT4 Could Change the Game in Outsourcing and CXM Verticals.
The use of Artificial General Intelligence (AGI) and Large Language Models (LLMs) like Chat GPT4 is still in its early stages, but the potential implications for the outsourcing and customer experience management vertical are monumental. While there will undoubtedly be practical applications, two questions remain:? ?
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Thanks for reading till the end! To celebrate our 10-year anniversary, we are giving away ten $10 Amazon gift cards!