The only consistent theme we have witnessed throughout 2022 so far is volatility in the marketplace. All industries have been impacted by the constantly changing market caused by a number of factors, including geopolitical uncertainty (e.g., Ukraine war, contentious elections, U.S. – China tensions, etc.), economic difficulties like inflation and rising interest rates, and continued strain to supply chains. The public markets have been unpredictable, with the S&P 500 starting the year at a record high, but dropping by nearly 25 percent through the first three quarters. We’ve also seen significant performance fluctuations in the middle market, as businesses struggle to react to changes in the broader marketplace. All of this uncertainty creates risk, but also opportunity for strategic and financial buyers to realize value through M&A.
While M&A deal activity is down from record highs in 2021, in terms of both value and volume, deal activity remains strong from a historical perspective. It was inevitable that we would see a reduction in activity from a record high, especially considering that 2021 was bolstered by some pent-up demand from 2020, and that in the first half of 2022, many buyers were busy with integrating deals that were completed in the second half of 2021. Additionally, we have seen a slowdown in megadeals in 2022, driven by the various factors already mentioned, as well as increased regulatory scrutiny and general cautiousness by management teams.
Fortunately, there is still significant liquidity in the market, particularly with private equity buyers that raised record levels of capital in 2021, resulting in a full-year increase in dry powder despite record levels of cash deployment. We expect deal activity in the short to mid-term to remain strong as compared to historical levels and for buyers to focus their efforts on both countercyclical industries and strong management teams that can adapt to the complex market that we are experiencing.
M&A Market Activity
Deal activity in the United States has declined in recent months, following a strong finish to 2021 and start to 2022. U.S. M&A deal volume for the nine months ended September 30, 2022 was 14.4 percent lower than the same period in 2021, while deal volume for the month of September 2022 declined sharply, with activity 17.6 percent lower than the prior month.
Thus far in 2022, the Pittsburgh M&A market has faced the same, if not worse, headwinds as the broader U.S. M&A market and seen similar trends in M&A activity, as deal volume for the nine months ended September 30, 2022 was 25.6 percent lower than the same time period in 2021, while September 2022 deal volume was 50 percent lower than September 2021. Still, Pittsburgh saw the closing of several noteworthy transactions — including both acquisitions and divestitures. Local companies, such as Pittsburgh-based PNC Financial Services Group, Astrobotic Technology, Inc., Everest Infrastructure Partners, and Zelienople-based Motion & Control Enterprises LLC completed strategic acquisitions within the month. Meanwhile, Pittsburgh-based Brothers Back Nine, LLC and Ellwood City-based Eric Ryan Corporation completed sale transactions to larger strategic partners.
Deal of the Month
On September 26, 2022, The PNC Financial Services Group, Inc. acquired Linga POS LLC in a transaction with undisclosed terms. Founded in 2004, Linga is an industry-leading point of sale and payments solutions company offering a cloud-based, platform-as-a-service solution for the hospitality industry, specifically restaurants. The Linga cloud-based platform is completely customizable and includes user-friendly functionalities such as online ordering, payments, QR code-based menus and virtual kiosks, among others.
"This acquisition reflects our continued commitment to expanding our corporate payments capabilities, as well as investing in the solutions and tools our clients need to run their businesses more effectively," said Emma Loftus, executive vice president and head of PNC Treasury Management. "Leveraging Linga's proprietary solutions and PNC's competitive treasury management platform, we will be able to provide our restaurant and retail clients with the tools they need to keep up with ever-changing consumer expectations."
Dan Bowman is a Vice President with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].