News & Resources
As we move beyond 2023, our firm looks forward to the market shifts that will shape the coming year and impact our clients. Check out our Q4 Northwest Market Update featuring perspectives on the past year from our Managing Director, James Thompson, an insightful report on the last quarter of the year, and a look ahead to 2024.
Transaction Volumes Decrease in 2023
After holding constant for the first two quarters of 2023, middle market M&A transactions in the Northwest Region (Washington, Idaho, Oregon, Montana, Wyoming, and Alaska) declined in the latter half of 2023. This change in transaction volume is consistent with global M&A market trends as macroeconomic factors, especially interest rates, had a significant impact on the overall market. However, the Northwest Region outperformed global benchmarks with a decrease in transaction volume of 23.5% from the prior year, compared to a 28.1% decrease in the global M&A market (S&P Global). Additionally, some transactions that occurred in Q4 may have yet to be publicly announced, and therefore would not be included in this count.
Quality Companies Still in Demand
In markets where overall volume is low and the cost of debt is high, the demand for quality companies is strengthened as private equity firms and other institutional investors treat each investment with heightened scrutiny. This demand, alongside high levels of dry powder needing to be deployed, drives investors to continue to pay increased prices for quality acquisition targets, despite negative economic factors. This trend is represented by consistent median transaction size despite the decrease in transaction volume in the latter half of 2023.
Minority and Majority Recaps Rise in Popularity
Private equity firms announced 4% more minority-stake investments globally than in 2022 (Preqin), despite overall transaction volumes falling. Minority and majority recapitalizations allow acquirers to invest with lower levels of equity and allow sellers to retain equity in the business. The amount of equity rolled, as well as the level of involvement expected of current owners moving forward, varies by transaction. This opens up new opportunities for current owners of growing companies to get a “second bite at the apple” when their company is sold for the second time, often resulting in an even larger pay-day for owners than the initial transaction.
Macroeconomic Factors Expected to Shift in 2024
In response to positive inflationary reports, the Federal Reserve began pausing rate increases in November of 2023. In December, it was announced rate cuts of 75 basis points can be expected in 2024. This announcement, as well as new reports showing a decrease in the YoY Inflation rate from 6.5% in 2022 to 3.5% in 2023, indicate a positive shift in the macroeconomic factors that limited M&A activity in 2023. As rate cuts materialize and other macroeconomic concerns continue to ease, 2024 will be well positioned for an increase in transaction volume and size both globally and in the Northwest region, of course with the caveat that geopolitical risks loom large.
Contact Us
Led by a team of former business operators and executives who have built and sold companies, Alexander Hutton is a boutique, middle market M&A advisory firm that has completed 225 successful transactions. We offer a unique understanding of what it takes to run a business and an accessible team dedicated to client service. By running a high-touch, competitive transaction process for each of our clients, we are able to help them achieve their ideal outcome.
Connect with the team at Alexander Hutton and talk to us about the future of your company.