Global M&A shows resilience as prices drop

Sellers have started lowering prices to satisfy buyers, helping M&A dealmakers tackle an otherwise challenging market.

Mergers and acquisitions have undergone a grueling reset. High inflation, soaring interest rates, a tight labor market and tougher borrowing made it more challenging for firms to strike deals. Some of these adverse conditions have carried over into 2023, and the recent banking crisis has further dried up liquidity across the market.

Despite these headwinds, roughly 10,625 M&A deals closed across the globe in Q1 for an estimated $993 billion, according to PitchBook data. While this marked a quarter-over-quarter decline of 7% and 10%, respectively, the performance is fairly robust when compared to the quarterly figures seen between 2017 and 2019.

Lower valuations in Q1 allowed financial and corporate buyers to scoop up attractive targets and bolstered deals, according to PitchBook’s latest Global M&A Report. At the end of March, the median revenue multiple for North America and Europe stood at 1.6x on a 12-month rolling basis, 20% lower than the peak of 2x in 2021.

The smallest end of the market has been the most affordable. The median revenue multiple for deals below $100 million was 1.1x over the same timespan, significantly less than the 5.9x recorded for deals exceeding $5 billion.

Sellers are finally lowering their price expectations, which has helped narrow the bid-ask spread in the market, said Tim Clarke, lead PE analyst at PitchBook.

Small businesses are bearing the brunt of higher interest rates and tighter credit conditions. And their access to the credit market is even more constrained following a series of blows to regional banks this year.

In recent months, banks have tightened lending standards to companies of all sizes, and smaller firms are receiving more scrutiny than their larger peers, according to a quarterly survey of senior loan officers released by the Federal Reserve.

In Q1, founder-owned businesses accounted for 85.3% of sellers in M&A deals, an all-time high. These companies are the dominant players in deals below $100 million.

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