Northeast Ohio Deal Activity: M&A outlook in a volatile economy

 

The only consistent theme we have witnessed throughout 2022 so far is volatility in the marketplace. All industries have been impacted by the constantly changing market caused by a number of factors, including geopolitical uncertainty (e.g., Ukraine war, contentious elections, U.S. – China tensions, etc.), economic difficulties like inflation and rising interest rates, and continued strain to supply chains. The public markets have been unpredictable, with the S&P 500 starting the year at a record high, but dropping by nearly 25 percent through the first three quarters. We’ve also seen significant performance fluctuations in the middle market, as businesses struggle to react to changes in the broader marketplace. All of this uncertainty creates risk, but also opportunity for strategic and financial buyers to realize value through M&A.

While M&A deal activity is down from record highs in 2021, in terms of both value and volume, deal activity remains strong from a historical perspective. It was inevitable that we would see a reduction in activity from a record high, especially considering that 2021 was bolstered by some pent-up demand from 2020, and that in the first half of 2022, many buyers were busy with integrating deals that were completed in the second half of 2021. Additionally, we have seen a slowdown in megadeals in 2022, driven by the various factors already mentioned, as well as increased regulatory scrutiny and general cautiousness by management teams.

Fortunately, there is still significant liquidity in the market, particularly with private equity buyers that raised record levels of capital in 2021, resulting in a full-year increase in dry powder despite record levels of cash deployment. We expect deal activity in the short to mid-term to remain strong as compared to historical levels and for buyers to focus their efforts on both countercyclical industries and strong management teams that can adapt to the complex market that we are experiencing.

M&A Market Activity

Deal activity in the United States has declined in recent months, following a strong finish to 2021 and start to 2022. U.S. M&A deal volume for the nine months ended September 30, 2022 was 14.4 percent lower than the same period in 2021, while deal volume for the month of September 2022 declined sharply, with activity 17.6 percent lower than the prior month.

Thus far in 2022, the Northeast Ohio M&A market has faced the same headwinds as the broader U.S. M&A market and seen similar trends in M&A activity, as deal volume for the nine months ended September 30, 2022 was 10.1 percent lower than the same time period in 2021, while September 2022 deal volume was 26.3 percent lower than September 2021. Still, Northeast Ohio saw the closing of several noteworthy transactions — both from strategic and private equity acquirers. Local companies, such as Independence-based MAI Capital Management, Mayfield Heights-based Parker-Hannifin Corporation, Macedonia-based Trexon, Kent-based Carter Lumber, and Canton-based Hilscher-Clarke Electric, Society Brands, and Kenan Advantage Group completed strategic acquisitions within the month. Meanwhile, local private equity and venture capital groups completed multiple transactions, including North Coast Ventures exiting its stake in Standard Bariatrics, Inc. and Edgewater Capital

Deal of the Month

On September 12, 2022, Parker-Hannifin Corporation completed the acquisition of UK-based Meggitt PLC in an ~$6.5 billion cash transaction, which was previously announced on August 2, 2021. Founded in 1947, Meggitt is an international group and a world leader in the aerospace, defense, and energy markets, employing more than 9,000 people at over 40 manufacturing locations and regional offices worldwide.

Tom Williams, Chairman and CEO of Parker said, “Meggitt’s complementary product portfolio and geographic footprint, as well as its proprietary and differentiated technologies, will significantly enhance Parker’s capabilities, positioning us to provide a broader suite of solutions for aircraft and aeroengine components and systems. This acquisition continues the transformation of Parker’s portfolio with greater exposure to longer cycle, more resilient businesses that are well positioned for secular growth trends.” ●

Dan Bowman 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]