Nixon Peabody recently welcomed a panel of dynamic women leaders in private equity, mergers and acquisitions, and investment banking to weigh in on current trends and opportunities in middle-market M&A. The panel featured Sylvie Gadant, Partner, Citrin Cooperman; Amanda Jackson, Managing Director, SRS Acquiom; Jennifer Muller Davis, Managing Director, Houlihan Lokey; Engin Okaya, Managing Director, Prudential Private Capital; Anabelle Skalleberg, Principal, Watermill Group; Elizabeth de Saint-Aignan, General Partner, AVP; and was moderated by Nixon Peabody Corporate partners Amy O’Keefe and Rachel Pugliese.
The panelists shared their experiences and perspectives as women in an industry historically dominated by men. And they offered a wealth of predictions on what to expect in the M&A space now and in the coming year.
Macro-Trends in the M&A Market
M&A has been flying high, with an unprecedented 10-year run that was capped off by a record year for M&A in 2021. 2022 was a strong year too, but things have been somewhat less robust so far in 2023, with M&A deal flow finally slowing from the high-octane pace driven by COVID-era transactions in technology, healthcare, and SPACs. Our panelists shared the following key trends:
- While deal value is down significantly (about 40% in the US), the number of deals in the US is only down about 4–5%. Smaller deals are happening—specifically deals at the lower end of the middle-market (sub $100M) are very active. Deals valued over $500M have dropped significantly.
- Cross-border deals are still relatively active even under the current regulatory environment. Private equity investors in the US are taking advantage of exchange rates in Europe. In addition, due in large part to the weakness of the Australian dollar, two of the largest five outbound deals (in the last 12 months) were in Australia.
- Deals are taking longer to complete; taking more time to get from a letter of intent (LOI) to Purchase Agreement, more time in diligence, and undergoing more regulatory scrutiny.
- The debt market is more stable now after an incredible amount of instability. Rising interest rates have shaken up the industry and put more power in the lenders’ hands, which has created a new dynamic. We anticipate seeing more regulation on the direct lending side of the house that’s been largely unregulated.
- Finally, valuations incorporate less cash up front and rely more heavily on things like contingent earnout consideration.
The failure of banks like Silicon Valley Bank and First Republic is undoubtedly the most impactful development, with far reaching ripple effects across all industries. Since the failure of these financial institutions (seemingly overnight), buyers now enter deals with a greater sense of skepticism and hesitation.
Despite the forementioned impediments to deal success, the saying “there’s a lot of dry powder out there” still rings true. Deals are still very much happening, but the parties must be prepared to navigate a slower process from LOI to closing and manage potential hurdles like re-trading on price, constricted credit markets, and greater regulatory scrutiny post-signing.
Drilling Down on Industry Trends
The panel shared the trends they are seeing from an industry and market segment standpoint.
- Tech deals are leading the way in terms of the number of deals closing in the US while the healthcare sector leads in value with the largest transactions.
- Lenders appear to favor deals in industrial manufacturing and distribution, ESG, renewables, and cleantech.
- We continue to see a shift toward more distressed transactions, especially in sectors that are highly leveraged or those sensitive to higher interest rates, including media and telecom, consumer, and real estate.
Another micro-trend the panel discussed was the large number of founder-owned privately held businesses coming to market. Those companies have weathered the storm of the pandemic, but the operators are exhausted by the effort. Many are eager to cash out and sell their business to strategic or private equity buyers. For founder-owners like this, the opportunity to roll deal proceeds back into an acquisition by private equity is appealing as partnering with private equity can eventually lead to a more passive income stream for these operators who may be ready to take their foot off the gas.
Women in M&A
We’ve seen women coming to the forefront in the dealmaking space in significant numbers over the last few years and it’s a notable trend that Nixon Peabody is proud to be advancing through our Women in Dealmaking initiative. NP moderators, Amy and Rachel were encouraged to hear the panelists share their perspectives on this important topic.
- Women have emerged at the forefront of dealmaking—taking commanding seats at the deal-making table in roles like managing directors of private equity funds, general counsels of large companies, and leads of investment banks.
- The panel agreed that women dealmakers bring a more compassionate, authentic, and collegial approach to negotiating. Women are often natural problem solvers, and generally tend to be less adversarial in negotiating, which can be a welcomed change to some clients.
- In today’s deal climate, which requires more creativity and patience to close a transaction, women negotiators’ agile and adaptable problem-solving approach will serve all parties well.
What to Watch For
While it was a slower start to 2023, many financial firms have capital to deploy and are eager to transact. We anticipate an active Q3 and Q4 to close out the year. The volume of deals is already trending up over the first month of Q2, but M&A observers should keep an eye on the credit markets, which could really make or break M&A activity in the second half of the year.