2023 Outlook from MBBI’s 11th Annual Private Equity Connection

  • Private equity
  • 12/9/2022

By: Brady Paschke This year MBBI (Midwest Business Brokers and Intermediaries) held its annual private equity connection conference in Brookfield, WI – the largest i...

By: Brady Paschke

This year MBBI (Midwest Business Brokers and Intermediaries) held its annual private equity connection conference in Brookfield, WI – the largest in its 11 year history. Over 340 lower middle market deal professionals, business owners, and private equity firms gathered for an afternoon of networking, a presentation on the 2023 economic outlook, and MBBI’s famous Shark Tank style panel.

Throughout the presentations and discussions with other deal professionals, the lower-middle M&A market continues to remain strong although certain headwinds are starting to play a factor. Below are a few of the highlights we took away as we close out 2022 and head in to 2023.

  • Lower middle market buyers are eager to stay active in 2023. Many buyers are looking to continue deploying capital despite the expected economic headwinds that are forecasted.
  • Lending has become much tighter, therefore capital structures have changed with a resurgence of junior debt serving as a key source of financing.
  • The current interest rate environment has created a valuation disconnect between seller expectations and what buyers are willing to pay. The rising interest rate environment has driven buyers to model a greater portion of earnings to service debt which has resulted in a decrease in offer prices relative to seller expectations.
  • Buyers are utilizing additional tools to help minimize risks inherent in transactions. More buyers are utilizing insurance products and performing additional due diligence during the transaction process to help minimize risk exposures.
  • Succession planning is increasingly important to sellers with high sensitivity to changing valuations and macroeconomic headwinds. Many business owners are beginning to look at strategic plans for exiting their businesses with many wishing that they had begun the process sooner.
  • Operators are looking for additional ways to manage their businesses with a significant emphasis on digital transformations.

Key Takeaway

Rising interest rates have created an ever-changing dynamic to lower middle market M&A. Buyers are still hungry to get deals across the finish line. Sellers have become more timid and are relying heavily on their advisors to navigate through the current environment.

Professionals that attended the 11th Annual MBBI Private Equity Connection were provided a great platform to network with other deal professionals and business owners in the lower middle market as well as learn more about the current state of the economy and how private equity firms structure transactions.

How CLA can help

CLA is here to help you analyze your M&A transaction during these complex times. We can assist you throughout each step of the due diligence process and help achieve the best outcome for your deal.

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

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