Page 2 - TACC 2023 Program

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20TH ANNUAL ACG CAPITAL CONNECTION

Middle Market M&A 2024 Update: What Do We See Today?

t was a tough valuations resulted in fewer companies After its December 2023 FOMC meeting,
year in 2023 wanting to transact in 2023, with companies the Federal Reserve forecasted it would
Ifor the US M&A instead opting to wait for higher valuations. make three quarter-point cuts by the end
Market for most These factors created a not so favorable of 2024 which would imply lowering the
intermediaries, environment for M&A opportunities in 2023. benchmark federal funds rate to 4.5%-4.75%.
investment In this December meeting, the FOMC also
bankers, strategic However, the higher interest rate environment provided a forecast of the target range for
buyers, and private is now baked into the economy, and several the federal funds rate from 2023 through
equity. Although new considerations are now visible. We 2026. A majority of the FOMC participants
now see some positive signs that M&A
deal activity opportunities appear ready to start moving believed the federal funds rate will be
remained higher again. below 5% sometime during 2024. For 2024
CHIN YU than its historic low through 2026, the FOMC forecasted a steady
in 2020, deal flow
Advisory Partner slowed drastically, When the Federal Reserve stopped raising decrease in the federal funds rate, marching
the benchmark rate downward below 4%.
interest rates in July of 2023, this implied the
in Charge, Calvetti falling 34% year- worst was now over, signaling a semblance of Some FOMC participants believed it will drop
Ferguson over-year. stability. Similarly, by the end of the second below 3%.
quarter of 2023, inflation had fallen from 9.1%
The main reason— a year earlier down to 3.0% as of June 2023. However, expectations could change if
the Federal Reserve raised the federal funds inflation does not continue falling toward
rate 11 times between March 2022 and July So, where do we stand on the fight against 2%. If inflation stays the same, the Federal
2023 from 0.25-0.5% to 5.25-5.5%, the inflation? Inflation has come down significantly Reserve may keep interest rates unchanged.
highest rate in over 20 years. The Federal to 3.4% in December 2023 since the peak And if inflation starts to move upward, the
Reserve raised the federal funds rate to of 9.1% in June 2022. The actions of the Federal Reserve could actually begin raising
manage rising inflation in the US after it had Federal Reserve cut inflation almost in half. interest rates again.
spiked from 1.2% as of December 2020 to a Meanwhile, the federal funds rate appears to
peak of 9.1% as of June 2022. The last time have plateaued at 5.25-5.50%. The Federal In the US, the economic outlook appears
the US saw this level of inflation was in 1981, Reserve now has ample ammunition with more positive at the start of 2024 compared
over 40 years ago. their ability to stimulate the US Economy to a year ago, and all signs appear to point
with interest rate cuts or bring the economy to more M&A activity in 2024 versus 2023.
This dramatic increase in the federal funds in for a “soft landing.” At a minimum, the The possibility of lower interest rates, stable
rate had a trickle-down effect on the cost of Federal Reserve can mitigate the impact of GDP growth, low unemployment, and lower
capital for both debt and equity. When the a recession should one materialize. Keep in inflation show positive trends that would likely
federal funds rate increased, this placed mind, the Federal Reserve increased interest increase M&A deal velocity in the US. Are
upward pressure on lending rates, making rates not to simply fight inflation, but to we going to see an increase in the number
borrowing more expensive. The higher cost prevent or mitigate a potential recession. As of M&A deals in 2024 at levels similar or
of capital required a higher rate of return 2024 progresses, if inflation stays in check, better than in 2021? Probably not. However, it
on investments, resulting in downward we may avoid a recession or get a soft appears M&A activity for 2024 is poised to be
pressure on company valuations. Lower landing. better than 2023.

The Power of the Process - for the Business Owner

very week, By exercising the M&A market, the business Confidentiality is one of the most important
business owner knows how real buyers value their considerations.
Eowners company in today’s market. They can see Always use a good NDA and multiple steps in the
receive calls di erent types of deals and structures - and process before providing sensitive information
and emails from pick the one that is best for them. By always to the prospective buyers. Never post anything
someone saying having alternative buyers, the seller maintains on the internet and never post on buy/sell
they want to buy strength and control in the process - and can
their company. dictate the timing. sites. That is the fastest way to let employees,
customers and competitors know that the
If a buyer can company is for sale. Keep competitors at arm’s
connect without Preparation is the key to a good sell-side length until a baseline deal is on the table. Then
an M&A advisor process. consider if a competitor can beat that deal. Be
DAN VERMEIRE involved, then The process only works if there is good prepared and move quickly through the M&A
Managing Director they can control preparation, including a good book (aka CIM process so that even with a leak, the deal can be
– Confi dential Information Memorandum) that
the narrative and
& Principal, CFA answers the buyers’ questions before they completed before there can be any damage.
Worldwide hopefully get a
good deal. That’s ask them. The process also needs a well- Final Thoughts
great for the Buyer. researched list of potential buyers that covers Every business owner deserves to have a
several di erent sectors and includes both
But how do we get a good deal for the Seller? strategic and fi nancial buyers. Most sellers do successful transaction and realize their dreams
The Sell-Side M&A Process is built exactly for not know for sure what type of deal is best until – whether that is to enjoy retirement, or to
that. they see their options. Often, the best choice is recapitalize with a fi nancial partner and enjoy

Having one buyer is having no buyer. not the buyer that you think it will be. the next chapter. By acting proactively, rather
than reactively, the M&A process can provide a
The power of the M&A process is in getting With these two things in hand, the process can powerful tool to achieve these goals. Talk to an
multiple o ers on the table, at the same time. run quickly and smoothly. investment banker at CFAW to learn more.