Dealmakers poised to join the M&A table in 2023

Jan. 14 – LAST WEEK, Bloomberg reported that Goldman Sachs plans to lay off nearly 3,000 employees as volatile global financial markets hurt deals.

While it could be a difficult time for investment bankers on Wall Street, middle-market companies and private equity firms in general are optimistic about their prospects, according to Citizens’ 2023 M&A Outlook.

The annual survey of 400 industry leaders released last week says they expect merger and acquisition activity to return to pre-pandemic norms. 62% of shoppers cited growth as their top motivation, compared to 48% a year ago.

“Many companies have emerged from both COVID and 2022 with very strong balance sheets, with management teams that have learned a great deal from both the impact of COVID and the inflationary impact of 2022,” said Joe Carelli, President of Citizens Bank for New Hampshire and Vermont.

Carelli, who oversees activity in six New England states and New York state, said inflation, interest rates, supply chain issues and energy costs appear to be stabilizing, prompting companies to be optimistic.

“They may have better visibility by 2023 than by 2022,” he said Thursday.

Hot sectors include technology, business services, aerospace and defense, and healthcare, Carelli said.

“Unlike a sector like transportation and logistics, where demand for some consumer goods may be slowing, these companies could lead to really rethinking what the future might hold for their prospects,” he said.

The lodging industry is also making a comeback, with revenue per available room, average daily rates and occupancy rates increasing.

“People are back on the road, people are traveling and staying in hotels. This bodes well for our economy, especially in a state like New Hampshire where we rely so heavily on tourism,” Carelli said.

Prove-it-to-me offers

Manchester law firm McLane Middleton is expecting a good year with decent activity, said Dennis Haley, who works with both buyers and sellers on M&A deals.

The company posted one of its busiest years ever in 2021 and was almost as busy last year, he said. Higher interest rates could hurt activity in the coming year, but he still expects to be busy.

“It may not be as off the charts as it was a few years ago, but I think we’re bullish too,” Haley said Friday.

He is currently working on several active deals and has several letters of intent in the pipeline. What happens to interest rates will be a big factor in how transactions work.

“If you finance with bank debt, the transaction becomes more expensive. So maybe you’re trying to beat the seller a bit on the purchase price. We might see a bit of that,” he said.

A prove-it-to-me deal he’s working on has a significant earn-out component, where the seller doesn’t receive the full payout until long after the deal is closed.

“Basically it’s like, ‘Hey buyer, prove your business is worth what I’m paying for it or two years of successfully making the same money or more that you made running it have,” said Haley.

Another trend Haley sees is business owners who aren’t ready to retire but don’t want the headaches of running their own business, like home and building maintenance.

“Some of that might be a product of the couple of years that we’ve just come through,” Haley said.

He also sees a lot of interest from private equity firms in online corner shops that do business through Amazon and don’t have a physical location.

“These little shops get private equity’s attention and they’re buying up dozens of them,” he said.

Mike Cote is senior editor for news and business. Contact him at [email protected] or (603) 206-7724.

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