Rising inflation and interest rates, as well as a looming recessionary period, continue to be top-of-mind for dealmakers. The economic uncertainty caused by these issues has led to modest M&A volatility. However, valuations for high-quality businesses remain lofty as several years of record-level fundraising by private equity groups has fueled a flight to quality. Prospective acquirers have been able to combat the tightening credit markets by replacing leverage with equity, which has kept valuations strong. And although U.S. M&A activity retreated in 2022 compared to 2021, both deal volume and values exceed historical norms.
Two major initiatives appear to be at the forefront as corporate executives look to turbocharge growth in the face of a recession: key strategic hires, and acquisitions or divestitures. According to PwC’s November Pulse Survey, 44 percent of executives plan to hire talent with a specific skillset to drive growth over the next 12 to 18 months, while 35 percent plan to make an acquisition or divestiture over the next 12 to 28 months, an increase of more than 10 percent as compared to August 2021.
Businesses that look to maximize value and optimize resources often look to divestitures as an important source of value creation; disciplined, strategic divestitures can drive meaningful returns, even in a challenging economic environment. A divestiture also can eliminate management distractions from the key strategic initiatives of the business and provide a substantial source of capital for acquisitions or transformative business initiatives.
M&A Market Activity
M&A transaction volume in Cleveland for the 11 months ended November 30, 2022 decreased approximately 20 percent from the historically high period in 2021. For just the month of November, however, deal volume remained relatively flat, decreasing just 2 percent as compared to the month of November 2021.
Overall, Cleveland, Ohio M&A activity remained strong during November of 2022, as businesses such as Applied Industrial Technologies, Nordson Corporation, The Timken Company, Great Day Improvements, and Lindsay Precast each made strategic acquisitions. Cleveland-based private equity firms The Riverside Company, Align Capital Partners, Blue Point Capital Partners, and MPE Partners each made acquisitions.
Deal of the Month
Timken, a global leader in engineered bearings and industrial motion products, acquired GGB Bearing Technology, a division of Enpro, Industries. The acquisition is expected to expand Timken’s product offering of metal-polymer and plain bearings, as well as provide better solutions to its customers’ friction management applications. Richard G. Kyle, Timken’s president and CEO, said that GGB, “presents an excellent cultural fit for Timken, including a commitment to corporate social responsibility with a portfolio of environmentally sustainable solutions.”
Anthony A. Melchiorre is a Senior Associate with MelCap Partners, LLC. MelCap Partners is a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].