The COVID-19 pandemic plunged the world into uncertainty, changing both consumer lifestyles and business practices. While some changes were temporary, others have proven to be more durable, and one long-lasting change that has directly impacted M&A is the transition to a highly virtual deal environment.
Prior to 2020, M&A due diligence had already become increasingly more expansive. The steady improvement of information technology and the rapid proliferation of data facilitated this trend. Simply put, businesses today have access to significantly more data than businesses of yesterday, providing acquirers with more information to process. The turbulent economic environment that the pandemic left in its wake further increased the due diligence requirements of a typical transaction, adding more risk areas that require diligence, with due diligence also becoming more thorough within each risk area. Meanwhile, the decentralized, remote work environment imposed by the pandemic inhibited another key area of M&A due diligence — face-to-face meetings and facility tours.
Enter the solution: virtual technology, which has been embraced equally by both sellers and acquirers. Today, due diligence is primarily conducted on a virtual basis, with videoconferences supplanting (or supplementing) in-person meetings, virtual facility tours taking the place of site visits, and virtual data rooms and other filesharing applications used to convey information digitally. A highly virtualized due diligence process is improving efficiency, saving time and cost, and satisfying acquirers’ needs to conduct comprehensive due diligence in a turbulent global economy, and we expect that virtual M&A is here to stay.
M&A Market Activity
National deal volume slowed meaningfully in July 2022, as inflation and other economic headwinds have increasingly impacted M&A activity. U.S. M&A deal volume for the seven months ended July 31, 2022, was 11.5 percent lower than the same period in 2021, while deal volume for the month of July 2022 was 31.2 percent lower than July 2021.
In July 2022, the Northeast Ohio M&A market demonstrated more resilience than the broader domestic market, as deal volume in July 2022 increased by 13.8 percent relative to July 2021. However, for the seven months ended July 2022, Northeast Ohio deal volume was 10.1 percent lower than the prior year.
July 2022 also saw the closing of several noteworthy transactions in Northeast Ohio — both from strategic and private equity acquirers. Local companies, such as Cleveland-based Sweeping Corp. of America (a portfolio company of Warburg Pincus) and Cleveland-based Majestic Steel USA, both completed multiple strategic acquisitions within the month. Meanwhile, several notable Northeast Ohio-based private equity groups also completed acquisitions, as Beachwood-based Elvisridge Capital acquired Innovative Concrete Technology Corp., Cleveland-based MPE Partners acquired 3D International LLC (in partnership with portfolio company Hi-Tech Industries), Independence-based Edgewater Capital Partners acquired AmeriWater, and Shaker Heights-based Align Capital Partners acquired Distributed Energy Financial Group through E Source, its software and tech-enabled service platform.
Deal of the month
On July 19, 2022, Cleveland-based private equity group MPE Partners announced the acquisition of 3D International LLC, dba 3D Car Care, an add-on acquisition for portfolio company Hi-Tech Industries. Headquartered in Santa Clarita, California, 3D is a leading manufacturer of car care and detailing products, including compounds, polishes, ceramic coatings, cleaning supplies, and accessories, and the company serves customers across 50 countries. According to Constantine Elefter, a principal on MPE’s investment team, “3D is well positioned for organic growth by capitalizing on historical investments made in branding, new product formulation, omni-channel sales development and manufacturing capabilities. We are thrilled about extending the foundation laid by [3D founder] Tunch [Goren] to reach new professional customers and do-it-yourselfers in combination with Hi-Tech.” ●
Matt Figas is a Vice President with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].