Pitchbook Market Data Points To Uptick In M&A Deal Activity

While worldwide M&A deal value reached $3 trillion in 2023, it marked the second weakest year in a decade. But new metrics suggest the rate of decline is slowing. Drew Seaman, managing director of Hunt Scanlon Ventures, digs into the latest market data from Pitchbook.

At the two-year anniversary of an all-time peak reached in 2021, the global M&A market turned in its second weakest year in exactly a decade. With total deal value sitting right around the $3 trillion mark, 2023 closed with a 15.8% decrease from 2022. However, according to Pitchbook’s latest Annual Global M&A Report, 2024 may be set for an explosive trend reversal. 

Pitchbook points to a slowing decline as evidence that the worst may be behind us. The decline in deal value was much steeper two years ago than it was in 2023, where 2022 saw deal value shrink by 23.4%. Meanwhile, Q4 2023 sported the best volumes since Q2 2022, with total deal value increasing 6.5% from Q3 2023. This represents a positive sign that trends are beginning to shift in the right direction. 

It is important to note that looking at the total deal count paints a much brighter picture for last year. When the dust finally settles, Pitchbook estimates that more than 40,200 M&A deals were announced or completed in 2023, which would rank as the third highest total on record.

On the Mend

Analysts at Pitchbook see this latest quarter as the most recent sign that the deal market is slowly on the mend. And there are other reasons to be optimistic. If financial forecasts hold, March 2024 will mark the beginning of a new cycle of Fed easing. This would bring welcome relief to the scores of financial acquirers currently bearing the burden of 12% or higher borrowing costs. 

Lower interests would, in turn, enable the deployment of the record breaking $1.6 trillion of dry powder currently stashed in the PE industry.

Alongside promising signs around an increase in deal volume, Pitchbook said a boost in deal valuations is imminent. The median EV/EBITDA multiple for M&A transactions announced or closed in 2023 was 9.3x, a modest improvement from the 8.9x recorded in 2022. While this is 15.5% removed from the all-time peak of 11.0x in 2021, the firming trend is certainly encouraging and likely to continue into 2024. 

Guessing Game

Peak to trough, global M&A value is now down 35.5% from 2021’s all-time high. The guessing game among M&A professionals is how and when the current down cycle will end. Not since the downturn of 2007 during the global financial crisis has the M&A market gone down for three straight years. 

Drew Seaman, managing director of Hunt Scanlon Ventures, unpacks what this all means for human capital markets which are already showing healthy signs of recovery.  

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Drew, what are your takeaways from Pitchbook’s latest M&A report?

I found the data on transaction count interesting. While total deal value was markedly down in the previous year, operators certainly weren’t dormant. We saw this trend all year long in the human capital sector which is where our firm lives. Deals were closed in 2023, they just looked a little different, and they were certainly achieved with much higher levels of creativity.

What did these transactions look like?

We have discussed several times in previous ExitUp articles that the market for search firms, leadership advisory outfits, talent consultancies, interim solutions providers, and executive coaching platforms, among others, was incredibly active last year, but more centered around smaller bolt-on acquisitions. Market data that we have collected supports this view. But what we have been seeing since right after Labor Day are strategic buyers and mid-cap PE firms circling for platform plays and larger acquisitions. That is a very encouraging sign.

“Valuations have come in line with expectations and that is creating an encouraging deal market. Realistic expectations move sellers along the deal track faster.”

What’s the implication?

Clearly, operators are ready to get deals done. The debt market simply was not compatible with the type of blockbuster deals that really drive the annual deal value metric. With the new cycle of Fed easing on the way, I would expect operators to continue what they did in the previous year, only now with significantly more capital for deployment. And they will put a focus on larger deals.

That’s the buy-side. How are sellers feeling heading into 2024?

Looking at the data surrounding deal valuations, as well as uptick in the number of calls our sourcing team is taking, our view is that sellers are more encouraged than ever to jump in. Valuations have come in line with expectations and that is creating an encouraging deal market. Realistic expectations move sellers along the deal track faster.

“Hunt Scanlon Ventures sees the window opening right now, and our advice to sell-side clients is to jump in. Buyers are lining up to pick off the best assets they can find, and we believe that window will only be open for a defined period as deals close and get absorbed.”

How fast do you see PE dry powder getting deployed?

It’s very hard to get all that dry power off the bench and put into use overnight. That said, operators we speak with daily are eager to light the flame. We all are. Once the Fed moves into an easing cycle, we are likely to see a bull run for deals like we have not seen in some time. Hunt Scanlon Ventures sees the window opening right now, and our advice to sell-side clients is to jump in. Buyers are lining up to pick off the best assets they can find, and we believe that window will only be open for a defined period as deals close and get absorbed.