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 Pittsburgh for both the month of November, as well as the 11-month period ended November 30, 2022, decreased more than 20 percent, as compared to the historically high period in 2021. November tends to be a slower month in M&A communities, as businesses look towards calendar year-end as a clean cut-off for acquisitions. 

Despite declining M&A transaction volume, a number of Pittsburgh-based businesses — Motion & Control Enterprises, Koppers, WESCO Distribution, and American Beverage Corporation —completed acquisitions.

Deal of the Month

Headquartered in Zelienople, Motion & Control Enterprises LLC, a provider of custom, innovative solutions for engineered systems, fluid power, compressed air, flow control, lubrication, and instrumentation challenges, acquired Nightwine Valves & Actuation Inc. Based in Cleveland, Ohio, Nightwine has established itself as a premier regional provider of industrial valves and actuation. Charles Hale, chairman and CEO of MCE, said, “with this acquisition, MCE continues to add to its growing family of businesses, all of which are focused on providing full lifecycle, highly engineered fluid power, flow control, automation and compressed air 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].