The Citizens’ 2023 M&A Outlook, an annual survey of 400 leaders at U.S. middle-market companies and private equity firms, highlights optimism in the M&A market among buyers and sellers despite economic headwinds. Dave Dunstan, managing director in the Citizen's M&A Group, says it's important to think about the survey results within the context of where M&A has been most recently.

"From an M&A standpoint, we had record volume and activity levels in 2021 — and when I say we, I'm really referring to the M&A market, broadly. We saw some of those same trends here, certainly, at Citizens, as well. So, very strong market coming off of that COVID pop as companies became more confident and operating within that environment. Very strong dynamics there, which were very positive for the M&A market."

The following year, he says, was a different story. The markets experienced inflation and recessionary dynamics, the Federal Reserve's activities to curtail them drove up interest rates, and the Russia-Ukraine war led to heightened market risks around those dynamics and subsequently a tightening in the leveraged finance market that, combined, slowed activity in 2022.

"Broadly, the M&A market saw a 30 to 40 percent drop in activity levels versus the record levels in 2021."

This year, the market looks comparable to pre-pandemic levels — a pretty good operating environment for M&A activity, which Dunstan calls a bullish sentiment.

"It will be down from those record levels in '21, but more normalized and better levels of activity than what we saw in 2022," he says. "So, certainly a good sign as we enter '23, here, early in the first quarter. A number of dynamics, to keep our eyes on as the year progresses. But very positive sentiment from the respondents."

Dunstan spoke on the Smart Business Dealmakers Podcast about the survey results and the expectation among buyers and sellers for the 2023 deal year.