Despite ongoing challenges and uncertainty in the macroeconomic environment in 2023, the pace of middle-market deal activity strengthened and expectations of a recession waned during the second half of the year. Indeed, while overall M&A activity was down globally in 2023, the middle-market continued to outperform the broader market and IMAP partners around the world registered another solid performance, closing 231 M&A deals worth more than $9 billion. A third of IMAP transactions in 2023 were cross-border as IMAP dealmakers continued to leverage their international reach and help clients seize opportunities abroad. From a sector perspective, IMAP was most active in the Services, Technology, Industrials, and Consumer segments.
Buyer demand for high-quality assets and profitable companies, which has been consistently strong in recent years, was boosted further towards the end of 2023 as inflationary pressures subsided and interest rates normalized. Succession was a major source of transaction activity, followed by horizontal consolidation and owners seeking liquidity opportunities. Appetite from banks and debt funds to finance deals showed signs of returning in late 2023, albeit with persistent scrutiny on business models and cash flows. Meanwhile, mismatched valuation expectations proved to be a hindrance to further deal closings throughout the year, but this has led to the formulation of creative earn-out solutions by our dealmakers to bridge these valuation gaps. Nonetheless, some companies have simply decided to wait on pursuing deals until there is more confidence that the economy has sidestepped a recession.
Private Equity was involved in many IMAP transactions although PE firms maintained a relatively cautious approach to M&A in 2023 compared to previous years. On the sell-side, PE firms postponed many exits due to lower valuations and on the buy-side PE sponsors paused on some acquisitions as higher interest rates made financing more expensive. The record amounts of unspent private capital continuing to build on the sidelines, when combined with public companies’ strong balance sheets could lead to an uptick in transaction activity in 2024. In fact, many IMAP advisors are reporting substantial deal pipelines as we begin the new year.
Jurgis Oniunas, IMAP Chairman commented: "2023 was another surprisingly strong year for middle-market transactions and we start 2024 with a sense of cautious optimism. Underlying market drivers – succession and high levels of PE capital – remain intact. Despite a stubborn inflationary environment, our partners across the globe continue to report strong pipelines and will creatively guide business owners through transactions in changing and unstable economic conditions.”
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