Despite obvious market challenges, many merger and acquisition (M&A) advisors still remain positive about the deal landscape.

Global M&A activity continued to decline in Q3 according to PitchBook’s Global M&A Report – down 29.8% from the Q4 2021 peak. However, sentiment among advisors appears to be relatively positive despite the obvious market and economic challenges we’re facing.

“‘May we live in interesting times,’ seems to be an appropriate truism describing the current M&A environment. Uncertainty abounds with the threat of a recession looming, yet deal volumes seem to be holding steady in Q4,” writes John Carvalho, Founder of Divestopedia in Firmex’s recently released Deal Flow Q4 2022 Bulletin.*

The report forecasts that the pace of announced deals will increase in the fourth quarter

of 2022 from the third quarter in both North America and Europe. Despite obvious challenges, overall, 56% of middle-market merger advisors said they are feeling positive about the M&A market, the first increase in optimism in a year. Only 14% reported having negative feelings about the future of the market.

Outlook Remains Positive for Q4

Here are some of the main highlights from the Firmex report:

  • 43% of advisors forecast volume in the coming three months to increase for the first time all year. Only 19% expect deal flow will decline.
  • Advisors report that deal volume over the last three months has mostly stayed constant, with the number saying their business increased (36%), down slightly from the previous survey in June 2020.
  • Buyers and sellers continue to be very interested in pursuing middle-market M&A transactions, as measured by a rise in data room openings in the third quarter of 2022.
  • To bridge the price gap between buyers and sellers, four in 10 advisors say that earnouts are becoming more common in deal agreements.
  • The pace of cross-border transactions is largely staying constant, although more than a third of advisors in Europe see an increase in foreign buyers doing deals in their country.

Challenges Ahead?

While sentiment is positive for the coming months, pessimism about the economy seems to be top of mind – more than half of the surveyed advisors anticipate a recession over the next year.

According to the International Business Brokers Association® and M&A Source Q3 2022 Market Pulse report, approximately 40% of advisors predict the Main Street and lower middle markets are headed for a decline in the year ahead. The remaining 60% are roughly split on whether they believe market conditions will stay the same or improve.

The Impact on Timing and Business Values

Advisors report that the uncertainty regarding the economy is complicating negotiations as buyers conduct more detailed due diligence and lower the prices they are willing to pay. Well over half of the advisors say it’s taking longer to close deals, and nearly as many say the gap in prices asked by sellers and prices offered by buyers has increased over the last quarter.

In terms of valuations, more than half of advisors reported that company valuations are average where previously advisors called valuations high or very high.

According to the IBBA Market Pulse, in the Lower and Middle Markets, most sellers continue to receive valuations at 94% of benchmark or better. Multiples were steady or better in all but the highest value market sector. They deem the survey results “intriguing” and “worth noting” for businesses with enterprise value of $5 million to $50 million. Those businesses received valuations at 102% of benchmark, even as multiples declined from their peak. Last year’s Q3 2021 multiple of 6.8 in this sector represented an all-time high in the 10-year history of the Market Pulse Report. The median EBITDA multiple these companies received was 5.3 last quarter (Q2 2022).

What This Means

“Confidence may be declining, but deals are still happening, and the market is still driving a premium for quality businesses,” one business broker is quoted as saying. And another says:

“We’re in unusual times. Even though signs are pointing to a recession, there’s a record amount of capital ready to be deployed from both corporate and private equity buyers… While inflation and interest rates will have some effect on transactions, it won’t throttle them.”

Despite the uncertainty that’s dominating the headlines, we remain positive about the M&A outlook for the near future—especially for solid, high-quality businesses.

There will always be external factors, beyond our control, that can impact business value and the timing of your exit. If you’re thinking about selling, make sure that you take action related to the factors that you can control. Get educated on all the things you should do in advance to ensure that you can preserve the continuity of your company, maximize business value, and achieve your exit goals.


*Published in partnership with Divestopedia, the Bulletin aims to forecast deal flow for the current quarter based on surveys conducted in September 2022 and activity on the Firmex Platform. The report combines proprietary data on virtual data room activity with M&A advisor interviews to forecast deal activity for the fourth quarter. According to the report, “the level of deal room creation has proven to be a reliable indicator of future M&A activity. In times of economic uncertainty, however, the measure becomes more of a trailing indicator because the time it takes for deals to close extends.”


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