New England Biz Law Update
With historically high deal counts and values, 2021 was an unprecedented year for the global mergers and acquisitions (M&A) market. In 2022, though, the total value of mergers and acquisitions in the U.S. and Canada fell to $1.477 trillion, a drop of 41.4% from 2021, per S&P Global Market Intelligence data.
Some of the declines came from a slowing economy and rising interest rates – challenges that remain a few months into 2023. How are these and other economic conditions affecting the M&A landscape? We asked attorneys from three law firms with a wealth of M&A experience to weigh in.
Katarina B. Polozie – Woods Oviatt Gilman
Despite valuations coming down from their very high 2021 levels and economic uncertainty driven by high-interest rates and inflation, Katarina B. Polozie, a partner in the Business and Finance Department, is currently seeing, “a high level of M&A activity in our practice.”
She attributes part of this strong M&A activity to the fact that even in an uncertain economy there are financial sponsors with cash to deploy for the purchase of good businesses.
If you’re a business owner considering a merger or acquisition, Polozie advocates getting your attorney involved early in the process to spot issues that will come up in due diligence and discuss how to resolve them, prepare diligence materials for efficient sale, negotiate non-disclosure agreements with buyers (and brokers if used), negotiate engagement letters with brokers and negotiate the letter of intent with a potential buyer or seller.
All of the actions are even more important in a shaky market, says Polozie, who adds: “A good attorney will find ways to save you money in a transaction, whether you are the buyer or the seller, so getting us involved early and sharing your goals goes a long way toward your most favorable outcome.”
Tyler Savage – Nixon Peabody
Tyler Savage, a partner in the M&A and Corporate Transactions group, shares a sense of “cautious optimism” with many professionals in the M&A world that “2023 will be better than 2022” despite high inflation and interest rates.
Savage is keeping his eye on some other potential challenges to the macro-M&A space as well, including the banking and tech industries on the heels of the Silicon Valley Bank collapse on Friday, March 10.
Silicon Valley Bank was a major player in the tech industry which has been the most active sector in M&A deals over the past few years. PwC’s 26th Annual Global CEO Survey predicts tech will remain a strong player in M&A deals again this year. Their research showed 64% of tech CEOs are not planning to delay M&A deals in 2023 despite economic challenges and volatility – higher than the all-industries average of 60%.
Savage says Silicon Valley Bank’s failure could possibly accelerate some tech M&A deals, though it is still early to know for sure the impact. Other headwinds in M&A that he’s keeping an eye on include the Federal Trade Commission’s proposed Non-compete Clause Rule (the proposal is in a public comment period through April 19, 2023) and the federal government’s increased scrutiny of larger M&A deals from an anti-trust standpoint.
John Koeppel and Sean Balkin – Lippes Mathias
Even though markets are tightening nationally and the cost of capital is higher than the frothy market of 2021, M&A activity is still quite busy — especially in the lower middle market — at Lippes Mathias, according to John Koeppel, partner and team leader of the firm’s private equity practice.
Koeppel is a corporate lawyer who has successfully structured, negotiated and closed over 250 transactions in the past two-plus decades, which typically involve mergers and acquisitions, fund formations and investments, and various private equity transactions.
Among the other differences he’s seeing is a market more buyer friendly now than a year ago and deals taking longer to get done than they were two years ago. This is due in part to more due diligence and less competition creating a rush to close quickly.
“People are being more pragmatic and judicious,” in their decision-making, said Koeppel, who is also seeing increased creativity around structuring some deals.
Sean Balkin, a member of the firm’s corporate and private equity practice teams, is seeing a return to a more balanced M&A market after its peak in mid-2021. He notes there is still interest and capital available for good, solid businesses.
For businesses considering M&A activity, Balkin says it’s always good to have a conversation with your attorney. Even if you decide the timing isn’t ideal right now, it puts you in a stronger position for when it is.
