The 2022 M&A market faced lofty expectations following 2021's unprecedented year of M&A activity, but significant headwinds in 2022 led to a retreat from the prior year's record levels of deal volume and value (though those levels still exceeded the historical performances of the pre-pandemic years). While the turbulence from those headwinds have carried over into this year, a host of new opportunities are expected to drive M&A activity, including an abundance of available capital, the emergence of more creative deal structuring and valuation trends that favor buyers.
Private equity fundraising, driven by an increase in capital from private investors, has remained near historic highs with over $343 billion in capital raised during 2022. That record-level of dry powder should be a key for recovering deal activity in the foreseeable future.
While dry powder is one component in the financing structure of a deal, private equity groups will also be tasked with balancing the challenges of securing debt capital as credit tightens. Consequently, private equity groups will need to find innovative solutions to appropriately leverage deals by utilizing alternative financing structures, such as earnouts and seller notes. Declining valuation multiples across a variety of industries, however, could catalyze private equity activity in 2023.
The outlook for M&A activity through 2023 remains positive despite lingering challenges. An influx of dry powder combined with declining valuation multiples should offset the tightening credit landscape and help drive increased dealmaking throughout the year.
M&A Market Activity
National deal volume slowed modestly in January 2023, which is unsurprising given the volume of deals that tend to close in the final quarter each year. U.S. M&A deal value and volume for the month of January 2023 were 34.9 percent lower compared to the month of January 2022.
The Central Ohio M&A market realized a modest decline in deal volume of 20 percent during January 2023 compared to January 2022. Still, several noteworthy transactions occurred in Central Ohio during the month. Hy-Tek Material Handling and Komar Industries Inc. completed strategic acquisitions within the month, and True North Asphalt, a portfolio company of Columbus-based Stonehenge Partners, acquired Huyser Asphalt Paving and Sealcoating.
Deal of the Month
Hy-Tek Material Handling, a material handling automation technology integrator and portfolio company of Dunes Point Capital, acquired on January 3 Connecticut-based Winchester Industrial Controls LLC, a provider of control systems and installation for automated material handling systems. In a statement, Hy-Tek CEO Sam Grooms said, “Hy-Tek’s acquisition of Winchester Controls broadens our offerings as the predominant player in material handling. With the addition of Winchester Industrial Controls’ highly experienced team, Hy-Tek further enhances its ability to execute concurrent large-scale projects in support of our enterprise logistics platform.”
Mike Kostandaras is an Associate with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].
