Sharply increasing inflation rates over the past two and a half years in the U.S. are a result of several contributing factors, but none more than the relationship between the prices for goods and services, and the labor market.
As the ratio of job vacancies to unemployment has steadily increased, labor market participants and jobseekers alike have bargained for better pay. This has led businesses to charge more for goods and services to meet the rising demand for higher wage rates. After more than 10 consecutive quarters of increased Federal Funds Interest Rates, Federal Reserve Chair Jerome Powell's strategy to temper the aforementioned pricing pressures may finally be achieving relative success. At the end of June 2023, the reported U.S. inflation rate reached approximately 3 percent, the lowest rate since March 2021. The decline in U.S. inflation is a step in the right direction and may allow for the past two years of increased borrowing costs to subside.
While the domestic cost of capital has increased, it remains at a relative historical low — an important factor when analyzing domestic M&A market activity. The recent modest decline in overall deal activity appeared to be inevitable relative to the near-historic pace of closed transactions that followed the COVID-19 pandemic. And overall transaction values remain at record levels due in part to:
- Tremendous amounts of committed, but uninvested, private equity capital.
- Generous levels of cash on corporate balance sheets.
- Relatively low costs of capital.
- Financial institutions’ propensity to lend on high-quality assets.
M&A Market Activity
U.S. deal volume declined in June as compared to the prior month. Through the first two quarters of 2023, U.S. M&A deal volume decreased by 16.1 percent compared to the second half of 2022.
The Northeast Ohio M&A market experienced an uptick in deal volume in June 2023 of 4.2 percent as compared to May 2023. June also saw several noteworthy transactions in the Northeast Ohio region, with ZRG Partners LLC, Marcum LLP, and ARC Health LLC, all companies with a greater-Cleveland presence, completing acquisitions.
Deal of the Month
National Safety Apparel Inc., a safety products and clothing manufacturer, completed its acquisition of Rauckman Utility Products LLC, as NSA expanded into the electrical products market.
Rauckman Utility Products develops innovative products for the electric utility industry to increase operator safety and system reliability. RUP will continue to operate at its product development and manufacturing facilities in Belleville, Illinois.
“We are very excited to have Rauckman Utility Products join NSA,” said National Safety Apparel CEO Chuck Grossman. “RUP has strong leadership, an outstanding team, a very unique product line and an excellent reputation in the utility market.”
NSA is forming a new “Electric Utility Division” where Jim Rauckman will serve as president and join NSA’s executive leadership team.
Anthony Melchiorre is a Vice President 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].
