Companies with deep management benches and clear management succession strategies are well-positioned with buyers in an increasingly complex M&A environment. Active shareholders should invest in a “next person up” manner to ensure smooth management transition at key positions. Strategies include mentoring, transitioning customer relationships, and delegating primary responsibilities to ensure there is an heir apparent for key positions, prior to launching a sale process.
Despite concerns of a potential recession, businesses do not need to feel like they should rush to market. More important to securing an optimal exit outcome is ensuring the business is ready to transact, irrespective of market conditions. Once the business is ready, understanding shareholder transaction objectives and designing a process to achieve those outcomes is critical to a successful sale.
With high interest rates and conservative lender behavior, financing is one of the leading causes of deals not closing. Buyers can differentiate themselves by eliminating financing contingencies with a proven ability to close with all equity. Sellers can help maintain healthy valuations through creative structures including seller notes, or equity roll overs.
Q3 2022 – Accelerated Pace Beyond 2021
US and Global Industrial Distribution M&A volume was flat in Q3 2022, as compared to Q3 2021. Globally, M&A activity posted 191 closed transactions, nearly in line with the Q3 2021 closed transactions of 192. The U.S. tracked similarly, recording 94 transactions, 9 transactions fewer than 2021. A resilient M&A market continues to support transactions at historically high levels, particularly in the face of macro headwinds. Forward looking M&A volumes are unlikely to remain at the peak levels seen throughout 2021.
Manufacturing sector indicators ended in contractionary territory for the third straight quarter. The Institute for Supply Management (“ISM”) New Orders Index declined to 47.1 in September 2022, continuing the contractionary trend for the fourth straight quarter. The ISM Purchasing Managers’ Index decreased to 50.9, down from 53.0 at the close of Q2 2022 (lowest reading since May 2020). The ISM Production Index decreased to 50.6 in September 2022 after ending in expansionary levels at the close of Q2 2022. The Consumer Price Index, a measure of inflation, increased to 296.8 in September 2022, a slight increase from 295.3 in June 2022.
Read Industrial Distributor M&A Pulse Q3 2022 Full Report
