The 2022 M&A market faced lofty expectations following 2021's unprecedented year of M&A activity, but significant headwinds in 2022 led to a retreat from the prior year's record levels of deal volume and value (though those levels still exceeded the historical performances of the pre-pandemic years). While the turbulence from those headwinds have carried over into this year, a host of new opportunities are expected to drive M&A activity, including an abundance of available capital, the emergence of more creative deal structuring and valuation trends that favor buyers.

Private equity fundraising, driven by an increase in capital from private investors, has remained near historic highs with over $343 billion in capital raised during 2022. That record-level of dry powder should be a key for recovering deal activity in the foreseeable future.

While dry powder is one component in the financing structure of a deal, private equity groups will also be tasked with balancing the challenges of securing debt capital as credit tightens. Consequently, private equity groups will need to find innovative solutions to appropriately leverage deals by utilizing alternative financing structures, such as earnouts and seller notes. Declining valuation multiples across a variety of industries, however, could catalyze private equity activity in 2023.

The outlook for M&A activity through 2023 remains positive despite lingering challenges. An influx of dry powder combined with declining valuation multiples should offset the tightening credit landscape and help drive increased dealmaking throughout the year.

M&A Market Activity

National deal volume slowed modestly in January 2023, which is unsurprising given the volume of deals that tend to close in the final quarter each year. U.S. M&A deal value and volume for the month of January 2023 were 34.9 percent lower compared to the month of January 2022.

In January 2023, the Northeast Ohio M&A market mirrored the broader domestic market, as deal volume decreased by 34.7 percent relative to January 2022. However, average disclosed deal value for Northeast Ohio was 105.6 percent higher compared to the same period.

The month also saw the closing of several noteworthy transactions in Northeast Ohio. Olympic Steel, Group Management Services and Farmers National Banc Corporation all completed strategic acquisitions, as did private equity groups Edgewater Capital Partners, The Riverside Company and Align Capital Partners also completed acquisitions.

Deal of the Month

On January 31, Independence-based Edgewater Capital Partners acquired NeoGraf Solutions LLC, a Lakewood-based designer, formulator and manufacturer of specialty natural graphite products for a diverse set of end markets. With a focus on investing in performance materials and service businesses, Edgewater is enthusiastic to partner with an industry-leading graphite solution provider located in Northeastern Ohio. Drew Walker, CEO of NeoGraf, acknowledged in a statement that Edgewater’s deep understanding of advanced materials will be instrumental in driving the business forward across NeoGraf’s existing end markets.

Mike Kostandaras is an Associate with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit or email [email protected].