Top Six Takeaways from DealMax 2023
By Adrian Nohr and Jennifer Clement
The largest single event of its kind on the planet, DealMax is a mega-match making marketplace for sellers and buyers of middle and lower-middle market companies. 850+ private equity groups / family offices and 150+ corporate buyers attended from across North America. CLA’s team on the ground included professionals in investment banking, deal services, and corporate strategy teams – hosting hundreds of meetings over 2-1/2 fast-paced days in Las Vegas.
Having met with a cross section of many industries – from manufacturing, to business services, to technologies – we had an opportunity to take a pulse on M&A.
Top Six Takeaways from DealMax 2023
- Deal Flow is up
Sticky inflation, rising interest rates, stubbornly low labor participation rates all contributed to a channel that didn’t go silent but audio volume was definitely down. While participants were expecting deal flow to follow suit and trend flat, we witnessed the opposite. The post-covid hangover bump is over. Deal flow is up compared to Q1 and CLA is working on a lot of sell side projects, which is often a leading indicator for future buy side work.
- Specialization is Up
Firms are sticking with their knitting and specializing. On average, private equity firms are planning to launch between 1-3 new platforms this year and embrace add-ons to expand market share. Use of central services to gain efficiencies is up, along with cross-pollination of executive leadership for competitive edge.
- Mezz is Up
No surprises – the current economic environment has capital artists getting creative. While mezzanine debt used to be a more expensive option but higher interest rates have pushed up the cost of senior debt and closed that gap. With lending tight, mezz activity is up.
- Post-Close Drama is Up
We heard of several cases of strategic buyers doing rollups with unsophisticated sellers, who are posing real challenges and taking longer to modernize post close. A typical seller in this category has never been through a transaction before (1, 2, 3rd generation family-run business), lacks experience with GAAP (Aunt Mary did the books for 30 years), and has never been through an audit cycle (cash business, no debt). As a result, there’s a substantial lift to build out infrastructure and modernize workflows for revenue recognition, inventory management, leases, and more.
- Scrutiny is Up
Investment committees are getting choosier and we’re seeing higher standards for gaining approvals. Investment committees are keen to invest in assets that can show earnings can be sustained in 2023 and beyond. Appetites for approving credit are down as banks can’t say yes as much anymore. Investors are holding onto cash and cash-only deals are up to avoid debt altogether.
- Critical Team Assembly is Up
Among the things we heard most frequently related to a lack of having the right advisory team going into a transaction. The need for specialized talent is stronger than ever to reduce risk. Buyers and sellers are looking for highly specialized attorneys, accounting firms, and coaching over the entire life cycle of the deal – from the initial sourcing, to working through key milestones, to transformation post close.
Conclusions
CLA’s professionals have deep experience over the entire life cycle of the deal. CLA can help you identify value creation opportunities and potential deal breakers that are tailored to your interests as buyer or seller. From owner transition, to buy and sell-side diligence (finance, IT, HR); to M&A advisory, and wealth management – CLA’s mission is to know you and help you achieve your personal and professional goals.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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