US economic snapshot

  • The Federal Reserve is expected to end tightening rates after one more rate hike, following aggressive hikes throughout September[1]
  • The consumer price index is at a 40-year high with sentiment likely dampening[2] thanks to rapid inflation in the costs of household essentials, despite recent easing in gasoline prices
  • We are witnessing the geopolitical impact of the Ukraine / Russia conflict continue to drive investor hesitation
  • Supply chain and labor shortages continue to impact final budgeted results for 2022 and projections for 2023

Median CPI


(Source: Federal Reserve Bank of Cleveland via Haver Analytics, ‘U.S. Economic Comment’ Daiwa Capital Markets, as of September 9, 2022)

2022: The first 9 months… M&A highlights

  • 2021’s record year for M&A activity in the US mid-market has set a high bar for deal activity in 2022 and for many, bucked the trend expected during post-Covid recovery
  • While 2022 started slowly, results in H1 (see PE deal activity chart below) indicate that the mid-market’s resilience was being maintained, despite increasing market challenges[3]
  • Similarly, fundraising overall and in the middle-market in particular, has slowed given investor nervousness, resulting in less dry powder competing for available middle market transactions

(Source: ‘US PE Breakdown’, Pitchbook, as of June 30, 2022) | (Source: ‘US PE Breakdown’, Pitchbook, as of June 30, 2022)

  • Though market hesitancy has increased, exits that are occurring are still dominated by sponsor-to-sponsor activity – resulting in less overall recycled capital available to LPs
  • Much of the fallout from less recycled capital in this fundraising marketplace has been on first time funds, with many delaying final closings and relying more on co-investment (first time private equity fundraising chart below)


(Source: ‘US PE Breakdown’, Pitchbook, as of June 30, 2022)

  • Ample private equity dry powder remains, however, although not at 2020 and 2021 levels, which, coupled with high levels of liquid debt in the market (albeit at higher rates), shaped the deal making environment in the first nine months of 2022

(Source: ‘Global Private Markets Fundraising Report’, Pitchbook, as of June 30, 2022)

  • Exit counts have slowed significantly in 2022, with a split between robust marketplaces for a diminishing number of exceptional assets, and a widening bid / ask spread for lower quality offerings – both of which have stalled deal volumes

(Source: ‘US PE Breakdown’, Pitchbook, as of June 30, 2022)

  • However, Q3 22 slowed significantly from 2021 levels, suggesting that tailwinds from inflation rate rises, the continued impact of the Ukraine/Russia conflict and ongoing Covid-recovery have increased investment caution for investors
  • Additionally, we’re seeing the launch of new processes beginning to slow, as sponsors who have deployed significant capital in H1 22 are preferring to ‘wait out’ the uncertainty

2022: what’s to come…

  • While 2022 deal activity may not meet 2021 levels, it is expected that this year’s activity will match that of 2018-2020, the three previous highest yearly activity levels on record
  • However, the continued inflation rate rises, supply chain issues and labor shortages still affect final budgeted results for 2022 and projections for 2023, impacting eagerness to transact at market clearing multiples in the short-term

(Source: ‘US PE Breakdown’, Pitchbook, as of June 30, 2022)

  • As we begin Q4 22, the fierce competition among US private equity funds will likely continue in the mid-market, especially for exceptional assets, which will likely continue to experience upward valuation pressure
  • Equally, the marketplace for other assets will likely continue to be active, but with variability toward the downside in bid/asked multiples specifically leaning toward substantial downward valuation pressure on lower quality assets
  • This will likely continue into Q1 23 until the full impact the 2022-2023 macroeconomic and geopolitical backdrop begins to take shape

Private Capital

  • Overall, Q1 22 capital raises have continued from 2021 levels, driven by long transaction lead times with transaction volumes continuing to be supported by interest in mega rounds (fundraising rounds of USD 100M or more)
  • These large funding rounds, driven by the abundance of capital raised in CY 2021 / H12022 for mega-funds, have generally escaped the overhang of a variety of macro factors and higher interest rates which have mainly impacted smaller deals
  • The macro-economic and geopolitical environment has slowed the ability to raise capital for transactions of all sizes during Q3 22
  • Enthusiasm for larger private capital raises for high quality growth companies remains high, however, despite the climate, as the availability of the alternative public market liquidity, SPACs and IPOs has all but dried up
  • As we begin Q4 22, we believe pent-up investor interest and momentum will continue to drive the availability of private capital raises for high quality issuers

Source: ‘Global Private Markets Fundraising Report’, Pitchbook, as of June 30, 2022)

  • This is distinct from the relatively smaller bucket of funding available for smaller size transactions in earlier stage or lower quality companies

Source: ‘Global Private Markets Fundraising Report’, Pitchbook, as of June 30, 2022)

  • The continued wide pool of capital resources available for high caliber transactions means the capital raising market remains open to funding to scale for the next generation of growth companies

Asia Access

  • Despite the recent depreciation of Asian currencies against US dollars[4], we continue to see a strong appetite from Asian strategics for cross-border acquisitions. This, coupled with relevant travel restrictions being lifted, could see this momentum continue
  • We believe this is driven by the fact that Asian corporates are reprioritizing North American market based on its good balance of market size, robust growth and stability, especially given the recent rise of geopolitical risks in some parts of Europe and Asian markets
  • We also observed that cross-border transactions have broadened to various sectors, including Industrials and Infrastructure
  • Notable transactions in this quarter includes JFE Holdings’ acquisition of California Expanded Metal Products[5], Taiheiyo Cement’s acquisition of Martin Marietta Materials for USD 350M[6], and Itochu Corporation’s acquisition of Pacific Woodtech Corporation, for USD 178M[7]- all of which show a post-pandemic re-emergence of industrial and infrastructure deals
  • Lastly, ESG continues to be critical element for M&A in Japan and other Asian countries, as the Japanese government sets its sights on being the leader for carbon neutrality in Asia, coupled with increasing awareness of environmental concerns across the region. We envision transactions such as JX Nippon Mining & Metals Corporation’s acquisition of eCycle Solutions Inc[8], a Canadian electronic waste recycling solutions provider, will continue to increase throughout the year and onwards


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