News & Resources

M&A Quarterly Report | Q3 2022

We are proud to present our 3rd Quarter 2022 Northwest Market Update. We have seen deal volumes drop slightly from last quarter as interest rates rise - however, strategic and financial acquirers remain active in pursuing durable, recession-resistant targets. This quarterly update includes data and insights on transaction counts and trends in the NW region, our latest transaction spotlight, and a commentary piece on the cost of debt increase.

Market Overview

The third quarter of 2022 saw a moderate decline in Northwest middle market M&A activity. Deal activity in the first three quarters of 2022 was down a little more than 12% from the first three quarters of 2021. A total of 172 middle market transactions were reported in Q3 for the Northwest, with a median deal size of $40M.

This decrease in activity was expected due to the challenges presented by the current macroeconomic environment. Post-pandemic growth is faltering, and September’s CPI report shows increasingly high inflation. In line with its monetary tightening policy, the Federal Reserve expects to lift interest rates further, which traditionally slows deal activity. We have seen the M&A markets softening as the year has progressed. However, acquirers remain active, and private equity stays consistently strong as an alternative investment. In Alexander Hutton’s current active deals, both strategic and financial buyers are highly engaged and interested, and multiples remain high for companies in desirable industries.

With a recession looming, it will be important to closely observe lending capacity and appetite, cost of capital, buyer’s access to equity capital, and the supply and demand for deals. As the economy slows, lending capacity could be hampered as banks adopt a more conservative approach. Buyer’s access to equity capital is typically resilient to recessions, but the demand for deals could be impacted if uncertainty influences buyers or sellers. However, it is important to understand that the mild nature of the anticipated slowdown should dull uncertainty within the market.

Alexander Hutton has observed consistent deal activity in the middle market during previous economic downturns and predicts a similar outcome with current trends. Private equity funds hold record amounts of dry powder and are continuing to invest in successful, private companies. Due to cash-heavy balance sheets from the recent economic boom, strategic buyers are similarly looking to acquire. Businesses that perform well and apply recession-resistant practices can expect an ample appetite and strong multiples in the market.

We hope you find this quarterly report useful. Please be in touch with any questions or if we can otherwise be of service. We look forward to hearing from you!