EPISODE 09: M&A Q3 2023 Quarterly Update

Listen as Matt Miller provides a quarterly M&A update for Q3 2023. Visit: https://bit.ly/473YnaO

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Transcript

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 Welcome to Cascade Partners M&A update where we review recent M&A activity in the fundamentals that drive it.

 Today we'll look back at the third quarter of 2023.

 Consumer spending is helping to keep the US economy on track despite higher prices and borrowing costs, real growth in spending on services increased about 3% year over year, while real growth in spending on goods expanded about 2% year over year.
 Spending growth is exceeding income growth as high inflation continues to take a bite out of US paychecks.

 Currently, consumer spending is approximately 85% of GDP, but expectations for the consumer are weakening wage inflation, which reached a high in 2021, is slowing.
 Labor markets continued to grow, but at a slower rate as they begin to stabilize with only 1.4 jobs for every candidate, down from a high of two to one.

 Importantly, consumer confidence is showing signs of waiting.

 Corporate profits appear to have plateaued and business investment continues to decline.

 The tight labor market and falling consumer confidence is affecting corporate optimism.

 However, CEO S expectations for recession have declined, according to the Conference Board and the Business Council, 80% anticipated brief and shallow US recession with limited global spillover down from a high in Q2 of 87 percent, 4% anticipated deep US recession with material global spillover down from a high of 13% in Q4 of 2022 in 17% anticipate no US recession, up from a low of 2% in Q4 of 2022.
 A drop in M and a volume is impacting reported valuations and the data reflects a significant gap between seller and buyer expectations.

 Valuation declines have accelerated in recent periods.

 A tighter leverage market and higher rates remain primary drivers of valuation pressure.

 Global annualized M and a volume is down on this 40% through the third quarter.
 Parsing the data.

 Larger deals have been impacted more than smaller ones.
 Following a COVID bump, the consumer sector has seen the biggest drop.
 The same variables are affecting private equity activity, given market uncertainties and potentially lower valuations, private equity groups have not been sellers.
 This in turn impacts fund dynamics.

 Specifically, fewer exits leads to less capital to reinvest, which puts pressure on firms to innovate and get off the sidelines.

 Leverage multiples were unchanged from Q1 to Q2, but a pullback is anticipated in Q3Q2, so improved pricing versus Q1 and surprisingly terms remained stable.
 Continued interest rate pressure and economic uncertainty likely push prices up higher.

 Thank you for joining us.

 We've included a link to the complete report below and please join us again next quarter.