The Deal Flow Bulletin: Q3 2023

The Firmex Deal Flow Bulletin uses virtual data room activity to forecast the volume of deals for Q3 2023.
In partnership with Firmex, we released the Deal Flow Bulletin for Q3 2023. Readers of the bulletin will come away with Firmex’s forecast on deal volumes for the third quarter of 2023, based on insights gained from knowledge of virtual data room activity and M&A advisor sentiments.

  • The number of announced M&A transactions in North America is projected to increase in the third quarter, the first rise in a year and a half, according to the Firmex model. Deals are also projected to increase in Europe by a smaller amount.
  • Merger advisors overall are feeling neither positive or negative about the middle market. In July, the most common answer to our question about their overall feeling about the M&A market was “neutral,” the first time it hasn’t been “positive” or “very positive” in the three years we have been conducting this study.
  • More advisors said deal volume increased in the second quarter than said it was flat or went down. The most common prediction for the third quarter is that volume will be flat.
  • The deals that were done were at notably lower valuations than previous quarters. One-third of advisors called the prices of deals they were involved with “below average.” Nearly half of the advisors say valuations will continue to fall in the third quarter.
  • Advisors say their success rate is decreasing. They closed an average of 60% of the deals they worked on in the recent quarter, compared to 70% a year ago.
  • The biggest drags on dealmaking are higher interest rates and tougher lending standards at banks, as well as the general uncertainty about economic conditions. At the same time, activity is being spurred on by the strong profitability of acquisition targets and the prospect that a merger can help the combined company cope with continuing labor shortages.
  • For the first time, we asked about the financial results of advisory firms. A bit more than a third said firm revenue had increased from a year ago. A bit less than a third said revenue had fallen. Spending on technology is increasing while travel is being cut back.
  • Private equity firms, which have dominated the M&A market in recent years, are pulling back somewhat, advisors said. Those that are doing deals have been conducting more extensive due diligence.
  • With bank loans more expensive and harder to get, deals are increasingly featuring more equity, earnouts, and other creative financing techniques.
  • More sellers are coming to market, and there are some signs they are getting used to the market’s lower valuations.
  • The fastest-growing industry sector is renewable energy, according to 70% of advisors. Real estate is the biggest laggard.

A New Forecast for Deal Volumes

Along with our forecast for deal flow in Q3 2023, The Firmex Deal Flow Bulletin presents readers with a look into changes in valuations, success rates, and buyers and sellers.

Readers of the bulletin will come away with deal volume insights gained from knowledge of virtual data room activity, as well as a grasp of what current M&A advisor sentiment is for the market for the third quarter of the year.

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