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M&A deal volumes to materially increases by the end of 2023, says CIL

Over 80% US investment banks and private equity firms are expecting a rebound in deal activity over the next 12 months, according to a survey by international management consultancy CIL for its Mid-Market M&A Pulse Check 2023.

The positive sentiment among the 110 respondents is fuelled by improving confidence in the economic outlook.

The research shows that while 43% of respondents report ‘very low’ or ‘low’ deal activity so far this year on the back of a rapid escalation of interest rates which has curtailed debt accessibility and escalated costs quicker than expected, 77% expect a swing to a buyer-favourable market to continue through the next 12 months as the market undergoes recalibration post-Covid, resulting in more realistic valuations that challenge sellers’ expectations.

In contrast, buyers are positioned advantageously, able to leverage these more dampened valuation expectations, and adopt a discerning approach when pursuing investment opportunities.

When asked about the two biggest challenges to their organisation in terms of being able to get deals done, excessively high valuation expectations (47%) and economic and market uncertainty (45%) were cited as the key obstacles in 2023. This was followed by a lack of quality assets (38%), difficulty accessing debt and high interest rates (29%) and the lack of available resources to execute (24%). A further 18% cited stringent investment hurdles and 8% said a lack of dry powder.

The results show that investors continue to prioritise a variety of value creation strategies to safeguard investments and maximise returns, particularly in heightened market uncertainty. When asked to choose the top two strategies they were prioritising to drive value creation within their investments, over half (52%) said buy & build was their strategic priority, while 38% picked out geographic expansion as their primary focus.

Operational improvements and commercial effectiveness were also both highlighted as a priority, with 36% of respondents identifying each as a top strategy to drive value.

Some 31% meanwhile picked out new offering development as a strategic priority, while pricing improvements was also chosen as one of the top two strategic priorities but by a minority of respondents (7%).

As the economy shows signs of stabilising, respondents are generally supportive of the Federal Reserve’s current monetary policy with 54% saying that it should stay the same, 23% saying it should tighten and 23% saying it should loosen. There is a more cautious approach to fiscal policy, likely driven by concerns surrounding inflation, with 47% saying it should stay the same, but 39% are of the opinion it should tighten.

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