News & Resources
Alexander Hutton is proud to present our 2022 Year in Review Northwest Market Update. 2022 was a record year for our firm. We want to thank the broader Alexander Hutton team, our service partners and most importantly, the many clients for the trust they placed in us. This quarterly update includes data and insights on transaction counts and trends in the NW region, our latest transaction spotlights, and a commentary piece on select industry trends. Check out the link below for the entire Market Update.
Dealmaking Slows in 2022
The M&A middle market saw a steady decline in deal count through the fourth quarter of 2022. The above graph, which shows middle market M&A transactions in the Northwest states, mirrors the general trends of the M&A market at large: deals are still getting done, but at a slower pace than last year.
Given the unprecedented M&A boom in 2021, a cool down was expected. Macroeconomic factors like the rapid interest rate increases sent a shock wave through the public equity markets, and IPOs came to a virtual standstill. Under these economic conditions, the upper middle market is typically impacted sooner and more aggressively than the middle and lower-middle markets. We have seen this reflected in the slight decline but continued stability in our region’s lower-middle market deal flow. However, the higher cost of debt in 2022 has directly affected the middle market, as it makes leveraged buyouts significantly more expensive for the acquirer. As a result, acquirers become more conservative, and valuations decrease.
Private Equity Stays Consistent
Private equity continues to actively seek middle market acquisitions, particularly add-ons for existing portfolio companies. Although dealmaking by volume declined 19.5% for the year, PE fundraising remained as strong in 2022 as in 2021. Investors are seeking alternative investments that yield a high return that the stock market is no longer providing, and private equity has historically been one of the most successful alternatives. Private equity-backed acquisitions are increasingly being financed with private debt. From our position as M&A advisors, we are still receiving frequent inbound interest from private equity firms seeking to acquire both platform companies and add-ons to their existing investments. Demand for high-quality companies in attractive industries remains strong.
Small Businesses Remain Successful
The Wall Street Journal found in a recent study that 60% of small businesses expect to increase revenues in 2023 due to tapering inflation rates and the ability to increase prices. Further, layoffs from large tech companies in the Northwest like Amazon and Microsoft may provide new talent to smaller, private companies looking to hire. For small to medium-sized businesses that continue to perform, owners and shareholders will continue to see opportunities in 2023 for successful exits to both strategic and financial buyers.