GYF’s Business Valuation Services Group presented Valuation Considerations for Transactions at the firm’s annual CPE Day. Discussion topics included the current M&A climate, challenges faced in the market, the impact these issues are having on valuation, and a 2024 M&A outlook.
Melissa Bizyak and Brad Matthews began their presentation noting that in 2023, M&A deal valuations have fallen dramatically, dealmakers are struggling to get deals done, and inflation slowed while interest rates continue to rise. With an uptick in transaction volume in 2021, followed by a normalized level in 2022, deals are down as of 2023 year-to-date. They also spoke specifically about the Pittsburgh deals market, which has, surprisingly, seen an increase in M&A deals in comparison to 2022 with several noteworthy transactions occurring in the previous months.
Following the current-year review, they went on to discuss the impact many of these factors are having on valuation. The change in interest rates is affecting the entire lending environment because financing acquisitions are more costly, resulting in a shift in many deal structures as investment alternatives are becoming more attractive. Inflation has also impacted many businesses, causing an increase in the cost of materials and wages; thus, resulting in elevated prices for consumers. Finally, with higher risk in the M&A market, business value for potential buyers is lower, which is largely reflected in the inverse risk/reward dynamic.
To conclude, Melissa and Brad discussed what is on the horizon for 2024. M&A activity is difficult to predict largely due to conflicting opinions, macroeconomic drivers, and market uncertainty. They expect creative deal structures to endure to help bridge the gap between buyers and sellers, as buyers are becoming more selective in their deals. The lending environment will likely also continue to impact M&A activity as financing costs and interest rates are not predicted to fall anytime soon. Overall, although challenges in the M&A market will persist past 2023, slight stabilization of major factors affecting valuation is expected to occur in 2024.
Click here to access copies of the slides, links to resources and a video of the presentation
About GYF’s CPE Day: The firm presents this program each year to bring together clients, friends of the firm, and other professionals who are interested in gaining knowledge. The day is always filled with interesting presentations and great networking opportunities, and is generally attended by 300+ guests. If you have any questions about the material covered, or other issues we did not have time to address, please reach out to your GYF Executive or contact the office at 412-338-9300. We look forward to seeing everyone next year!
