The labor market received highly promising feedback in the recently released May jobs report, which revealed a substantial increase of 339,000 nonfarm payrolls. This surge in numbers caught many by surprise, surpassing Dow Jones estimates by 78.4 percent. Driven by the business services, government, and health care sectors, the significant deviation between the projected and actual figures highlights the labor market’s resiliency and signifies a remarkable acceleration in May job creation.
Despite the nonfarm payroll growth, national unemployment jumped from 3.5 percent in April to 3.7 percent in May, which was the highest since October 2022. However, this was largely driven by a 369,000 decline in self-employment, implying that entrepreneurs, freelancers and individuals engaged in contract work are those currently facing labor challenges. Additionally, average hourly earnings month over month are stabilizing, increasing only 0.3 percent. All of these factors are considerations that the Federal Reserve will need to take into account when evaluating the state of the economy, but historically, these are positive signs of moving toward a soft landing.
The report’s implications for the M&A community are significant, as companies are increasingly motivated to engage in M&A activities to fortify market presence, improve competitive advantage and foster overall growth. The growth in nonfarm payroll jobs serves as a testament to the expanding opportunities within established businesses and organizations, reinforcing the positive outlook for strategic acquisitions. Additionally, the deceleration in wage growth and stabilization in average hourly earnings create a favorable environment for companies to address concerns related to inflation, mitigate financial risks and allocate capital toward M&A activities.
Strategic acquisitions have already made a significant impact, representing an impressive 79.7 percent share of the total 2023 M&A activity in the U.S. If the positive trend of increased job opportunities and the stabilization of wages persists, the M&A environment will remain promising for strategic acquisitions.
M&A Market Activity
U.S. deal volume declined in May 2023 as compared to the prior month. Through the first five months of 2023, U.S. M&A deal volume decreased more than 25.4 percent compared to same period in 2022.
During May 2023, the Pittsburgh M&A market experienced an increase in deal volume, contributing to 118 total transactions since the start of the year. May 2023 saw several noteworthy transactions in the Pittsburgh region, with Pittsburgh-based companies Mold Medics, Carbon6 Technologies Inc., TTG Imaging Solutions LLC, Pocket Nurse Enterprises Inc. and R&R Express Inc. involved in transactions within the month.
Deal of the Month
Evoqua Water Technologies Corp. is a Pittsburgh-based water and wastewater treatment solution provider, offering water treatment equipment, systems and services for purification, disinfection, filtration and water reuse.
On May 24, 2023, Xylem Inc. completed an acquisition of Evoqua in an all-stock transaction valued at approximately $7.5 billion. The acquisition makes Xylem the largest pure-play water technology company in the world, serving customers across 150 countries.
“Our complementary portfolios and end market exposure position us even more strongly for growth together, as we solve our customers’ water challenges and help make our communities more water-secure,” said Patrick Decker, president and CEO of Xylem. Under the transaction terms, each share of Evoqua common stock was converted into the right to receive 0.48 of a share of Xylem common stock, which results in Xylem shareholders owning approximately 75 percent and Evoqua shareholders owning approximately 25 percent of the newly combined company on a fully diluted basis. ●
Carter Hatina is an Analyst 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].
