Rising inflation and interest rates, as well as a looming recessionary period, continue to be top-of-mind for dealmakers. The economic uncertainty caused by these issues has led to modest M&A volatility. However, valuations for high-quality businesses remain lofty as several years of record-level fundraising by private equity groups has fueled a flight to quality. Prospective acquirers have been able to combat the tightening credit markets by replacing leverage with equity, which has kept valuations strong. And although U.S. M&A activity retreated in 2022 compared to 2021, both deal volume and values exceed historical norms.
Two major initiatives appear to be at the forefront as corporate executives look to turbocharge growth in the face of a recession: key strategic hires, and acquisitions or divestitures. According to PwC’s November Pulse Survey, 44 percent of executives plan to hire talent with a specific skillset to drive growth over the next 12 to 18 months, while 35 percent plan to make an acquisition or divestiture over the next 12 to 28 months, an increase of more than 10 percent as compared to August 2021.
Businesses that look to maximize value and optimize resources often look to divestitures as an important source of value creation; disciplined, strategic divestitures can drive meaningful returns, even in a challenging economic environment. A divestiture also can eliminate management distractions from the key strategic initiatives of the business and provide a substantial source of capital for acquisitions or transformative business initiatives.
M&A Market Activity
M&A transaction volume in Columbus for the 11 months ended Nov. 30, 2022, was relatively flat, increasing approximately 1 percent as compared to the same period in 2021. While deal volume for the 11-month period ended November 2022 remained relatively flat, deal volume increased more than 14 percent as compared to November 2021.
Overall, Columbus M&A activity remained strong during November 2022, as Columbus-based businesses Huntington National Bank, Fyda Freightliner Columbus and Emplifi Inc. each made strategic acquisitions. Additionally, Columbus-based Wagner Rental & Supply Inc. was acquired by Sunbelt Rentals Inc.
Deal Of The Month
On Nov. 14, 2022, Installed Building Products Inc., an industry leader in the installation of insulation and complementary building products, closed on the acquisition of Surface Purveyors LLC, doing business as Lynch Insulation. Lynch, headquartered in Missoula, Montana, with an additional location in Hamilton, Montana, has established itself as a premium provider of fiberglass and spray foam insulation. Jeff Edwards, chairman and CEO of IBP, stated, “Lynch expands our presence in Montana … acquisitions remain a key component of our growth strategy.” ●
Anthony A. Melchiorre is a Senior Associate with MelCap Partners, LLC. MelCap Partners is a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].