The 2022 M&A market faced lofty expectations following 2021’s unprecedented year of M&A activity, but significant headwinds in 2022 led to a retreat from the prior year’s record levels of deal volume and value (though those levels still exceeded the historical performances of the pre-pandemic years). While the turbulence from those headwinds has carried over into this year, a host of new opportunities is expected to drive M&A activity, including an abundance of available capital, the emergence of more creative deal structuring and valuation trends that favor buyers.
Private equity fundraising, driven by an increase in capital from private investors, has remained near historic highs with over $343 billion in capital raised during 2022. That record-level of dry powder should be a key for recovering deal activity in the foreseeable future.
While dry powder is one component in the financing structure of a deal, private equity groups will also be tasked with balancing the challenges of securing debt capital as credit tightens. Consequently, private equity groups will need to find innovative solutions to appropriately leverage deals by utilizing alternative financing structures, such as earnouts and seller notes. Declining valuation multiples across a variety of industries, however, could catalyze private equity activity in 2023.
The outlook for M&A activity through 2023 remains positive despite lingering challenges. An influx of dry powder combined with declining valuation multiples should offset the tightening credit landscape and help drive increased dealmaking throughout the year.
M&A Market Activity
National deal volume slowed modestly in January 2023, which is unsurprising given the volume of deals that tend to close in the final quarter each year. U.S. M&A deal value and volume for January 2023 were 34.9 percent lower compared to January 2022.
The Greater Pittsburgh M&A market realized significant growth in deal volume in January 2023, as the Pittsburgh area’s deal volume was 25 percent higher compared to January 2022. The month also saw several noteworthy transactions in the Greater Pittsburgh region, primarily driven by strategic acquirers. Viatris Inc., Excela Health and System One Holdings LLC completed strategic acquisitions, and private equity group PNC Riverarch Capital completed an acquisition of A.P.A. Industries.
Deal of the Month
On January 3, Canonsburg-based Viatris Inc. (NasdaqGS: VTRS) acquired Oyster Point Pharma, a biopharmaceutical company focused on developing first-in-class therapeutics to treat ophthalmic disease, and Famy Life Sciences, a drug development platform focused on therapeutics in ophthalmology. In a statement, Viatris CEO Michael Goettler said, “We are starting the year out strong with the closings of our acquisitions of Oyster Point Pharma and Famy Life Sciences, bringing together our collective commercial expertise, scientific capabilities and global infrastructure to create the Viatris Eye Care Division, which has the potential to deliver even more access to patients and showcases the power of our Global Healthcare Gateway.” ●
Mike Kostandaras is an Associate 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].