New York, April 18, 2024 – SPS sponsored a webinar on Thursday, April 18th titled, Adapting Deal Sourcing Strategies to Thrive in 2024, moderated by David Toll of Private Equity Career Week.
To view a recording of the full webinar, click here. To download the presentation slides, click here.
CEO of SPS Nadim Malik, John Caple of Hidden Harbor Capital Partners, Andrew Collina of Stifel, and Sash Rentala of Solomon Partners led a 75-minute discussion touching on a variety of topics such as how firms are using the latest technology, an assessment of where pricing multiples and leverage multiples have settled, a review of Q1 deal-making, and much more.
Examining total PE and M&A volume, 2023 was down 16% from 2022. Despite the decline, deal activity came in at the third highest level ever seen since SPS began tracking the data. The trend that began in 2021 of PE representing a larger share of overall M&A activity compared to strategic buyers has continued and strengthened in the last couple of years, with PE activity representing 55% of overall deal activity in 2023, compared to 53% in 2021.
Industrials has replaced Technology, which was the most active sector in 2021 but has seen a significant year-over-year decrease for the last two years. Though it was the most active sector in 2023, Industrials deal activity is down in line with the overall market, after increasing in 2022. Business Services was the third most active sector and was down significantly in 2023 after performing relatively consistently over the prior two years. The sectors with the mildest decline are Healthcare and Energy. PE has the edge over Corporate buyers in all of the top five most active verticals, while the Financial Services, Energy, and Media and Telecom sectors saw a higher share of strategic deals.
Analyzing the trend of the buy-and-build and roll-up strategies in private equity shows it continued to accelerate, reaching 2.7 add-ons for every platform in Q1 2024, compared to 2.5 add-ons for every platform last year, and 1.4 add-ons per platform about a decade ago, almost doubling in that time.
Looking at PE pipeline data, the median number of deals PE firms logged was 187 in Q1 2024, up from the prior quarter and up over 20% compared to Q1 2023. While these numbers are not an indication of quality, they do suggest that deal flow is trending positively purely from the perspective of volume.
The annual SPS analysis of Intermediary Churn reveals that of 880 active intermediaries in 2023, 73% closed three deals or less over the year. 143 firms sold a business for the first time in 2023, while 387 firms that were active in 2022 had no deal activity in 2023, indicating a potential churn of roughly 530 advisor firms each year. SPS published the top 25 intermediaries for 2023, broken down by transaction values.
Malik unveiled the SPS Prism, a premium report available exclusively to SPS clients, including various views into target market deal activity and clients’ market coverage. By evaluating YoY trends in target market activity against the effectiveness of client’s deal sourcing function, Prism provides a deeper, more nuanced picture of the forces impacting dealmaking and opportunities to strike than raw data alone.
In a teaser for the upcoming 2024 Deal Sourcing Databook, a Middle Market Activity Snapshot evaluates the top PE buyers and intermediaries, as well as sector activity by deal size, for deals in the $50-499MM EV range over the past two years.
