M&A Environment Remains Robust

Although the M&A market has mildly slowed after hitting record levels in 2021, there are still signs of strength. In fact, 2022 numbers match healthy, pre-pandemic levels and we continue to see a robust M&A environment in the lower middle market even during a time of perceived uncertainty.

We continue to experience a mix of headwinds (i.e., rising inflation and interest rates, supply chain and labor challenges, and geopolitical turmoil, to name a few) and a slightly more conservative lending environment, but are also seeing a positive trend of companies that have evolved since the global financial crisis to be more diversified in customers and end markets, have a better handle on pricing and margins, and positioned with more “levers” to pull to combat any perceived slowdown. These resilient and well-positioned companies are seeing high degrees of interest.

So what does this mean for companies looking to sell or grow through acquisitions? Attractive multiples persist, however, with greater purchase price structure, including seller financing and earnouts in certain scenarios. Buyers are also rightfully increasing their analysis of target companies with greater scrutiny and more narrowly focusing on specific industry sectors while considering capital expenditure and financial projections. As a result, there are fewer interesting opportunities for buyers to look at, but this allows higher-quality companies to receive greater attention and more attractive enterprise values.

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