M&A Quarterly Review—2nd Quarter 2022

Middle market M&A results were mixed in Q1 2022

  • Deal volume rose 11% to 14,570 during the TTM ended March 2022
  • Total deal value increased 32% to $411 billion during the same period
  • Valuation multiples pulled back to 7.3x TTM adjusted EBITDA in Q1 2022 from 7.5x in the previous quarter

Debt is becoming cost prohibitive, but cash is plentiful

  • Total leveraged loan issuance in the U.S. reached $217 billion YTD April 2022, down 27% YoY
  • Companies held less cash in Q1 2022 than in 2021, but still significantly more than pre-pandemic amounts
  • Globally, private equity firms held $1.78 trillion in dry powder as of February 2022

The economic expansion stalls and recession calls grow

  • GDP growth plunged to -1.5% in Q1 2022, a sharp reversal from the 6.9% growth rate recorded in Q4 2021
  • The LEI dipped marginally and has been flat the last three months because of expectations for more moderate growth
  • Consumer confidence weakened for the third consecutive month due to rising inflation and interest rates

M&A activity likely to slow during the second half

  • Valuations and volumes could drop, especially in industries exposed to supply chain risk
  • Due to its impact on operating earnings, inflation is likely to impact activity more than interest rates
  • The private equity industry may create a floor for M&A activity because of its size and need to put capital to work

Risks to our view

  • The Federal Reserve lifts rates faster or more than expected
  • Russia’s invasion of Ukraine and other supply constraints cause inflation to rise unabated
  • The odds of a recession in the next 12 months spike from the current consensus of about 28%