Behind the Numbers

Whenever someone wants to make a point or prove a thesis, the quickest way to do it is with data. In this magazine edition, we offer a midyear update based heavily on data and research from several providers—including ACG’s own GF Data—to take the temperature of the market.

There is no doubt that the numbers look discouraging. Amid market headwinds, bank collapses, rising interest rates and geopolitical conflicts, private equity M&A has once again moved to the sidelines to wait for a better investment climate. Some of the data shows what we already suspected: Deal volume and leverage is going down while dry powder is increasing among private equity, private debt and other strategies.

At the same time, we know numbers don’t always tell the whole story, and there are some hopeful signs. Average valuation multiples haven’t dropped by much, for example, suggesting that deals for quality companies are still closing. GF Data’s numbers show a rebound in transactions in the first quarter of this year, compared to the fourth quarter of 2022, suggesting that deals for smaller companies are still crossing the finish line. (GF Data’s reports track deals in the $10 million to $500 million enterprise value range.)

Marc Chase, a partner and private equity leader at Baker Tilly, compared the current environment to a barbell when he spoke to Middle Market DealMaker for our deep dive into private equity dry powder on p. 16. “We see really high-quality, class A deals getting done, and we see the lower end of the market where deals need a lot more TLC. What we’re not seeing is that middle tier,” he says. The cover story and trend feature, meanwhile, explore deal volume, valuations and leverage numbers so far this year, as well as creative strategies investors are using to bridge the gap between buyer and seller expectations. Multiple industry experts suggest the second half of the year will be a better dealmaking market. They feel the bank collapses in the spring delayed a recovery by making debt capital even harder to come by. Our sources say that conditions must either stabilize or dealmakers will have to learn to transact in a different environment, with higher interest rates, lower leverage and more uncertainty.

Whichever path the market takes, we look forward to digging into third and fourth quarter numbers and determining whether these predictions came true. //

MIDDLE MARKET DEALMAKER // FALL 2023 EDITION

VICE PRESIDENT, ACG MEDIA

Jackie D’Antonio jdantonio@acg.org

CONTENT DIRECTOR

Kathryn Maloney kmaloney@acg.org

SENIOR EDITOR Anastasia Donde adonde@acg.org

DIGITAL EDITOR Carolyn Vallejo cvallejo@acg.org

ART DIRECTOR, ACG MEDIA

Michelle Bruno mbruno@acg.org

CHIEF REVENUE OFFICER

Harry Nikpour hnikpour@acg.org

SENIOR DIRECTOR, STRATEGIC DEVELOPMENT

Kaitlyn Gregorio kgregorio@acg.org

Dealmakers are expressing cautious optimism about M&A activity in the latter half of 2023. Buyers and sellers alike are showing a penchant for creativity to close deals, whether through greater equity contributions or use of earnouts and other deal terms.

At a time when traditional equity and debt capital are difficult to access, Middle Market DealMaker explores a range of strategies that PE investors are using to provide capital to companies or extend the life of their funds.

Association for Corporate Growth membership@acg.org www.acg.org

Copyright 2023 Middle Market Growth® and Association for Corporate Growth, Inc.® All rights reserved.

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ISSN 2475-921X (print)

ISSN 2475-9228 (online)