SPS Sponsors and Participates in PE Webinar: Effective Deal Sourcing in a Slowdown

New York, April 27, 2023 – SPS sponsored a webinar on Thursday, April 27th titled Effective Deal Sourcing in a Slowdown, 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 joined Andrew Morrow of Houlihan Lokey, Dominic Chan of Vaquero Capital, and Harv Barenz of HGGC for a 75-minute discussion covering a review of Q1 deal-making and an industry-by-industry outlook for private equity deal flow in 2023, an assessment of where pricing multiples and leverage multiples have settled, and more.

Malik evaluated the state of the M&A market in Q2 2023, beginning with a comparison of deal volume in 2022 versus 2021. Following the 2021 boom, total deal volume declined by just over 15% in 2022. Despite this decline, 2022 deal activity weighed in at the second-highest level since tracking the data. 2022 was also the second consecutive year that private equity activity outpaced corporate activity as a proportion of overall M&A deal volume.

On a quarterly level, deal activity has trended downward quarter-over-quarter since the beginning of 2022 – a deviation from the upward quarterly trend seen over recent years. According to current SPS data, Q1 2023 deal counts are down 32% compared to Q1 2022. (Note: as deals from Q1 continue to be reported, this percentage change will slightly decrease.)

In the 2020-2022 period, Industrials was the most active sector for overall M&A activity, followed by Business Services and Technology. In each of the most active sectors, deal volume has been volatile over recent years with a dip in 2020, subsequent spike in 2021, and a return to pre-pandemic levels over 2022. In most sectors, PE won overall market share compared to strategic investors, with a particular edge in Industrials, Business Services, and Healthcare. In PE-only activity, Industrials was down less than 10% YoY from 2021 to 2022. While activity in the Business Services sector just barely declined, Technology saw the sharpest drop in deal volume over this period.

Private equity’s growing trend toward buy-and-build and roll-up strategies is one factor contributing to PE’s outpacing corporate activity over recent years. This trend has continued to accelerate, reaching 2.5 add-ons for every platform transaction during 2022 and rising to 2.8 add-ons per platform as of Q1 2023.

Median Q1 2023 deal flow for private equity firms was 175, which is the lowest number of deals logged over the past three Q1 periods, though this may not indicate deal volumes in the quarters ahead. Instead, pipeline data may imply stronger business development practices among PE firms, resulting in more targeted outreach or broader processes impacting the number deals that show up in firms’ pipelines.

In 2022, there were 908 unique intermediaries that sold at least one business of above $10MM EV in the US and Canada. While this number is comparable to the 916 active intermediaries in 2021, it does not imply consistency in who those advisors are; 132 of the 908 active intermediaries in 2022 sold a business for the first time, and over 360 advisors that were active in 2021 were not in 2022. All told, total intermediary churn in 2022 was approximately 499 firms (Note: the count of individual professionals at these firms would be even greater).

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