US Private Equity Mid-Market Monitor: Q1 2023
Date
May 09, 2023 • 24 min read
DC Advisory US' senior bankers share their reflections on the first quarter of 2023, and anticipated key trends driving deal flow for the rest of the year.
A note from Chairman of the Board & US CEO, Scott Wieler & Bill Kohr:
“2023 has started as we predicted, with a path to the ‘new normal’ truly being carved out: the bid/ask spread is narrowing; pressure on private equity firms to deploy capital is building; and critically, innovation – or ‘the art of the possible’ - is front and centre for both buyers and sellers.
With private equity firms facing their most challenging fundraising environment in a decade, we’ve seen continuation funds and strategic buyers (with access to lower cost capital) providing alternative liquidity options this year, as investors collectively look to capitalize on lower valuations.
This quarter, founders have been the biggest sellers of businesses – not private equity – indicating that build up of activity we anticipated for H2 2023 is on track. What is clear, however, is that as this new normal is being defined, there are unique opportunities following suit, which with the right advice, can mean an opportunity to really make a difference in the marketplace of the future.”
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What's driving deal flow in 2023?
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"Despite the current macroeconomic and geopolitical backdrop, the middle market remains resilient and has begun Q2 with increasing momentum, albeit a tepid Q1. As we move towards a ‘new normal’, the future looks promising" - Dan Graves, Managing Director
Aerospace, Defense & Government
"Companies should have a thesis and align on areas of spend and focus. Don’t be a mile wide and an inch deep, specialise in particular areas to build strategic value" - Chris Oliver, Ellis Chaplin, Managing Directors
Consumer, Leisure & Retail
"Private equity firms need to be nimble when selling assets. They should plan the timing carefully to ensure they are ready to go when the forthcoming wave of deferred sales processes arrives" – Mark Goodman, Vice Chairman
Beauty & Personal Care
"The long-term fundamentals in beauty & personal care remain strong, and as one of the leading performers in the Consumer, Leisure & Retail sector, it continues to provide a unique and promising environment for investment" - Luc-Henry Rousselle, Managing Director
Restaurants, Franchising & Foodservice
"We expect a reduction in margin pressures to be a catalyst for deal activity - costs are starting to moderate, and we expect margins to improve this year" – Darren Gange, Managing Director
Outdoor & Enthusiast
"We expect a ‘new normal’ level of consumer spend in outdoor and enthusiast categories to be a key driver of deal flow in Q4 2023 and beyond " – Patrick Furlong, Director
Education & EdTech
"History has shown that during periods of market volatility, opportunities can dissipate and arise quickly. Prioritizing preparation is crucial to being ready to take advantage of more favorable market conditions when they arise" - Justin Balciunas, Managing Director
Healthcare
"As market conditions evolve in to a ‘new normal’ so do the expectations of buyers. Striking a balance between being opportunistic and exercising caution is now more crucial than ever. To secure optimal outcomes, engage early in candid and open fireside discussions" - Rich Blann, Manish Gupta, Hector Torres, Managing Directors
Industrials
"The resilience of the sector through market uncertainties has not gone unnoticed by investors. We're seeing confident and active strategic buyers in the space, as well as continuing interest from financial sponsors." - Matt Storkman, Tom Krasnewich, Todd Wilson, Managing Directors
Infrastructure
"Having conviction around where you want to invest and building a strong business case ahead of a transaction coming to market is crucial to increase the likelihood of achieving investment goals" - Hannah Schofield, Anthony Edwards, Managing Directors
Media & Telecom
"We are moving from a ‘growth at all costs’ environment – frequently driven by investor sentiment - to one where there is a focus by both boards and management on sustainable growth and profitability. I find it reminiscent of the attitudes following the burst of the dot-com bubble" – Gretchen Tibbits, Managing Director
Technology & Software
"As the ‘new normal’ becomes more widely accepted, deal volumes may increase. While the market has undergone a correction, high performing companies may still receive attractive valuations. However, it is doubtful volumes will reach previous levels due to the depressed market environment and financing challenges. We are likely to see increased amounts of structure and equity in these transactions" - Eric Edmondson, Vice Chairman
e-Commerce Marketing Technology
"There are a lot of investors looking to put money to work. When there is a real interest form private equity, we’re looking to see a deep dive into diligence in advance of valuation indications. This shows true interest and gives more conviction to the sellers and their advisors that deals can be closed on indicative terms and conditions." - Frank Cordek, Managing Director
Infrastructure Software
"We are in the early stages of a return to typical levels of deal activity and risk tolerance. This trend will continue as industry participants continue to demonstrate consistent growth and enhanced operational efficiency" - Joel Strauch, Managing Director
Property Technology
“2023 is proving a challenging year for capital-intensive prop tech. This has presented a unique window for bolt-on acquisitions, enabling investors to acquire synergistic assets that can accelerate growth and drive profitability” – Jane Santini, Director
GP Strategic Advisory
"Knowledge is power. It is important to be knowledgeable about this market and the various ‘tools in the toolkit’ at your disposal, even if a transaction of this nature does not make sense today. This market is very dynamic and constantly evolving so it is important to be current on the latest trends, market participants, and structures" – Hal Ritch & Donato de Donato, Co-Leads
Predicting future activity is an art and not a science and this analysis is not scientific. It is informed judgement – much like the best M&A advice.
All data included in this publication was sourced from Mergermarket and Pitchbook unless otherwise indicated.
For important information regarding this publication, please see our Insights and Publications disclaimer >
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