Corporate Dealmakers Meet @ The Union League Club, New York

This week at the Union League, senior corporate executives, M&A advisors, and institutional investors discussed the resilience of global M&A activity amidst economic headwinds, geopolitical tensions, and high inflation.

Here are some key takeaways:

Valuation Discrepancies Causing Headwinds

Valuations in the middle market are starting to make more sense, leading to cautious optimism. However, while sellers have been accustomed to premium valuations from the last few years, buyers are now factoring in the high price of capital and uncertainties. As a result, some sellers aren't willing to sell yet.

A couple of years ago was a very frothy environment; now, we aren’t getting multiples like before, which leads to longer hold times. Will we see capitulation? The big question for financial investors is: How do you return capital to investors in this environment?

“If we buy today, what will its value look like in an uncertain future? If you pay a high-value multiple upfront, what will its value look like in an uncertain future?” This challenge is significantly impacting deal volume.

Headwinds are causing choppiness in the rhythm/cadence of deals (start-stop-start-stop) more than blocking them from getting done. This means longer due diligence periods, as there's less pressure to complete deals quickly. While this isn't necessarily hurting deals, it isn't helping either.

Where Are the Deals Happening?

Despite the challenges, there are still positive aspects in the market:

• Large Cap Deals: Deals over $10M have increased by over 50% - it’s a big deal market.
• Unique Positions: While overall volume seems to be down, some buyers in unique positions seem unaffected. All-cash transactions are a prime example.
• Stock vs. Cash: To compensate for risk, overall stock transactions, as opposed to cash, are at an all-time high. This approach helps mitigate uncertainties and facilitates deal completion.
• Strategic Bias: 80% of market transactions are strategic. Strategics seem to be less affected than financial investors as a whole.
• Institutional grade-level independent sponsors are also doing well, raising money deal-by-deal, causing a disruption in the PE space.
• Sector Advantages: There’s a bifurcation of values in the industry, with tech, healthcare, and energy having a value advantage. These sectors make up about half of the deals this year, especially in defensive industries.
• Transaction Insurance: Transaction insurance has become more readily available for increasingly smaller and larger deals, expanding on both sides of the spectrum, and helping deals get done.

There’s $3-4 trillion of capital sitting in funds uninvested – dry powder is real. There's still a lot of available working capital that needs to be allocated.?The IMN Dealmakers event provided a wealth of insights and highlighted both the challenges and opportunities in the current market. It's clear that while there are headwinds, there are also significant opportunities for those who are well-prepared and strategic in their approach.

It was great to be a part of this year’s event. Looking forward to the next one!