What Happened in M&A in 2023, and What’s Ahead, in Five Charts,” recently published in the The Wall Street Journal, paints a compelling picture of the highs and lows in the mergers and acquisitions (M&A) landscape. Here’s a concise overview of the key insights and trends that business owners should pay attention to:

  1. Global M&A Landscape: A 20% Dip in 2023

According to Bain & Co., the total value of global M&A transactions is expected to drop by 20% in 2023 compared to the previous year, reaching approximately $3 trillion. Notably, venture capital and private-equity firms experienced significant declines of 39% and 35%, respectively. Strategic deals, involving the acquisition or sale of all or part of a company, also saw a 14% decrease.

  1. The Price Dilemma: Buyers vs. Sellers

One of the major challenges in 2023 was the difficulty in reaching agreements on prices. The Federal Reserve's aggressive rate hikes over the past two years altered the dynamics, making debt financing more expensive and contributing to an uncertain economic outlook. The result was a significant gap between what buyers were willing to pay and what sellers expected, leading to stalled negotiations.

  1. Private Equity's Strategic Shift: Minority-Stake Investments

Private-equity firms adapted to the high-rate environment by opting for minority-stake investments. By purchasing less than half of a company, they avoided the need to refinance seller debt at higher interest rates. This approach saw a 4% increase in 2023 compared to the previous year.

  1. Costly Financing: Bridge Loans and Availability

While financing became more available in 2023, it also became more expensive. The U.S. market for bridge loans, a common short-term financing option, experienced a threefold decline to $69.8 billion. Economic uncertainty and the high cost of permanent financing contributed to this trend.

  1. Earnings Outlook: A Positive Signal for M&A

The third quarter of 2023 witnessed a 2.5% increase in earnings per share (EPS) for S&P 500 companies compared to the previous year. This positive shift, coupled with a projected 3.6% increase in EPS during the fourth quarter, bodes well for the M&A landscape. Improved corporate profits, as companies adjust to high input costs and inflation cools, provide a favorable environment for deal-making.

Despite the challenges faced in 2023, there is optimism for a rebound in M&A activity in 2024. The potential for interest-rate cuts, coupled with improved earnings outlooks, may pave the way for a more robust and active M&A landscape in the coming year. Business owners are encouraged to stay informed and strategically position themselves to capitalize on emerging opportunities in this evolving landscape. And while there will always be external factors, beyond our control, that can impact business value and the timing of your exit, there are actions you can take now on 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. It can take months and sometimes a year or more to maximize your business value. Don’t wait until a buyer comes knocking. Be prepared to go to market when the conditions are right.

Download a free copy of our new book Sell Your Business at the Right Time, for the Right Price and to the Right Buyer if you’re thinking about selling or transitioning out of your business in 2024! 

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Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice. Information presented is believed to be factual and up-to-date; however, BTA makes no guarantee as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages from its display or use. Any forward-looking statements are believed to be reasonable; however, BTA gives no assurance that such expectations will prove to be correct.

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