Despite concerns about the global economy entering a recessionary cycle, with mounting headwinds including accelerating inflation, rising interest rates, a lower equity market and a continued energy crisis, many companies are confronted with an ongoing labor shortage. Stemming from the COVID-19 pandemic, many employees have not re-entered the market by choice or through early retirement, reflected in the nearly record number of U.S. job openings. Through April 2022, and updated as of June 2022, the number of U.S job openings was observed at 11.4 million — just short of the record of March 2022 of 11.9 million.
According to PWC’s Global M&A Industry Trends: 2022 mid-year update, the No. 1 risk factor to growth for companies is the workforce, primarily driven by the Great Resignation and the highest wage inflation in decades. As a result, acquisitions have become a focus for workforce strategy.
Holistically, strategic and financial buyers have had to realign acquisition strategies to place a greater emphasis on targeting quality companies with strong, stable workforces as a means to identify top talent and enhance overall human capital. From a seller’s perspective, companies that employ quality workforces and have demonstrated a history of positive financial performance are in a marketable position to take advantage of continued lofty valuations. These valuations are primarily due to the excess liquidity that remains in the market. According to Pitchbook, global dry powder in Q2 2022 exceeded $2 trillion, three times higher than during the financial crisis, and over $600 billion within the U.S. through Q1 2022. Additionally, U.S. cash on corporate or strategic balance sheets exceeded $1.9 trillion in the U.S. alone.
Following healthy M&A deal flow in the U.S. throughout the first quarter of 2022, deal volume has declined in recent months. U.S. M&A deal volume for the second quarter ended June 30, 2022, was 15.2 percent lower than the same period in 2021, while deal volume for the six months ended June 2022 was 7.2 percent lower than the same period in 2021. Disclosed deal value within the U.S. M&A market, however, has increased by 79.4 percent for the six months ended June 2022 when compared with the same period in 2021.
More specifically, the Pittsburgh area continues to navigate the turbulence experienced by the broader U.S. M&A market, as deal volume for the three months ended June 30, 2022, was 26.1 percent lower than the same period in 2021. However, the region experienced a number of transactions in June 2022 from reputable strategic and financial buyers, including Westinghouse Air Brake Technologies Corp., AlarMax Distributors and Motion & Control Enterprises; each made strategic acquisitions in June. Additionally, Incline Equity Partners, a Pittsburgh-area-based private equity firm, completed an acquisition or made investments, as well.
DEAL OF THE MONTH:
On June 21, 2022, Pittsburgh-based private equity firm Incline Equity Partners acquired Raney’s Inc., an e-commerce distributor of aftermarket heavy-duty truck parts and accessories. Founded in 2010, Raney’s is a leading provider of functional parts and accessories including lighting, fenders, bumpers and exhausts. In addition, Raney’s operates a chrome shop out of its headquarters in Ocala, Florida. A shift to online sales and an increasing desire for customization creates significant demand for Raney’s product set. To build upon this momentum, it plans to invest in technology to improve inventory management capabilities and leverage digital marketing to engage with new and existing customers.
Evan Lyons is a senior associate and Mike Kostandaras is an analyst with MelCap Partners LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, visit www.melcap.com or email [email protected]