M&A in 2023 – What to Expect? What Did We Learn From 2022?

As we move into the new year, you may be wondering what is on the horizon for mergers and acquisitions. Let’s take a look at some of the things that happened in 2022 and how they will transition into expectations for the market this year.

Setting up for 2023

Moving from 2021, which saw a strong market with abundant deals, 2022 slowed its pace due to a number of factors, including high inflation, interest rate hikes, supply chain issues that spilled over from the global pandemic, and the war between Russia and Ukraine. Lower deal volume and decreased overall valuations for sellers meant a lukewarm year for many deals.

However, there was good news for private equity firms. They were left with a significant amount of “dry powder” — that is, money yet to be allocated to a specific investment by investment managers — held by U.S. private equity firms that is yet to be utilized. As a result, private equity firms are expected to continue to be active in the M&A market in the coming year as they seek to unload this capital and take advantage of investment opportunities. However, since there are limited deals available, competition may remain fierce, and firms may need to be selective in the deals they pursue.

2022 also set us up for increased competition for the deals that are on the table. In order to secure these deals, private equity firms need to move fast and close deals quickly. In the event that interest rates rise, they will likely need to focus on managing current investor earnings before managing interest, taxes, depreciation, and other factors.

What to expect in the year to come

The biggest areas to watch this year are in Representations and Warranties Insurance (RWI) and in the middle market for private equity transactions.

Trends in RWI

Within RWI, we are seeing several trends coming into play in 2023. For one, it looks like the market will remain constant, if not booming, for the majority of the year. Deals are expected to increase towards the final quarter of the year. Also, within RWI, the use of secondaries is on the rise despite their not being traditionally covered by RWI. There is also an increase in new product development, such as music rights and other niche products, which is providing new opportunities.

Middle market predictions

A recurring problem within M&A in the middle market last year was a lack of adequate insurance due diligence. It’s expected that this trend will continue into 2023 as well, and firms must be vigilant in managing the deal as it closes. It’s key to build up coverage and manage any problem areas as necessary. It is also worth checking the carrier, as many middle market players deal with local or regional carriers, and it could be well worth switching to a national carrier if the new owner is looking to add more acquisitions. Cyber security continues to be a risk as well, and middle-market business owners are urged to invest in any kind of cyber security coverage since many continue to lack any coverage for this liability.

Getting off to a strong start

While the market may be unpredictable, Symmetrical is ready to help you manage your best deal. Get ready to sell and work with professionals to ensure the best value possible. Please contact us for a confidential discussion of your specific situation. We have experience helping business owners across various industries to sell their businesses, as well as relationships with buyers interested in new opportunities.