Deal Pulse Pittsburgh: M&A Outlook in a Volatile Economy

The only consistent theme we’ve seen so far in 2022 is volatility in the market. All industries have been impacted by the ever-changing markets caused by a number of factors including geopolitical uncertainty (e.g. Ukraine war, disputed elections, US-China tensions, etc.), economic difficulties such as inflation and rising interest rates and ongoing strains on supply chains. Public markets were unpredictable, with the S&P 500 starting the year at a record high but falling nearly 25 percent over the first three quarters. We’ve also seen significant fluctuations in mid-market performance as companies struggle to respond to changes in the broader market. All of this uncertainty creates risks, but also opportunities for strategic and financial buyers to realize value through mergers and acquisitions.

While M&A deal activity has declined from record highs in 2021, transaction activity remains strong in terms of both value and volume from a historical perspective. It was inevitable that we would see activity drop from a record high, especially given that 2021 was underpinned by some pent-up demand from 2020 and that many buyers were busy completing the first half of 2022 Deals to integrate in the second half of 2021. Additionally, we have seen a slowdown in megadeals in 2022 due to the various factors already mentioned, as well as increased regulatory scrutiny and general caution by management teams.

Fortunately, the market still has significant liquidity, particularly from private equity buyers who raised record amounts of capital in 2021, leading to a year-round surge in dry powder despite record cash commitments. We expect transaction activity to remain strong in the short to medium term compared to historical levels and that buyers will focus their efforts on both counter-cyclical industries and strong management teams that can adapt to the complex market we are witnessing.

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Activities in the M&A market

Transaction activity in the United States has declined in recent months after a strong end to 2021 and a strong start to 2022. US M&A deal volume for the nine months ended September 30, 2022 was 14.4 percent lower than the same period in 2021, while transaction volume for the month of September 2022 declined sharply with activity being 17.6 percent lower than in the previous month.

So far in 2022, the Pittsburgh M&A market has faced the same, if not worse, headwinds as the broader U.S. M&A market, and has seen similar trends in M&A activity as transaction volume increased over the nine months ended December 30, 2020. September 2022 was 25.6 percent lower than the same period in 2021, while transaction volume in September 2022 was 50 percent lower than in September 2021. Still, Pittsburgh completed several notable deals — including both acquisitions and divestitures. Local businesses, such as those based in Pittsburgh PNC Financial Services Group, Astrobotic Technology, Inc., Everest infrastructure partnerand Zelienople-based Motion & Control Enterprises LLC completed strategic acquisitions within the month. Now based in Pittsburgh Brothers Back Nine, LLC and Ellwood City-based Eric Ryan Corporation have completed sales transactions with major strategic partners.

Offer of the month

on 09/26/2022, PNC Financial Services Group, Inc. acquired Linga POS LLC in a transaction with undisclosed terms. Founded in 2004, Linga is an industry-leading point-of-sale and payment solutions company providing a cloud-based platform-as-a-service solution for the hospitality industry, specifically restaurants. The cloud-based Linga platform is fully customizable and includes user-friendly features such as online ordering, payments, QR code-based menus and virtual kiosks, among others.

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“This acquisition reflects our continued commitment to expanding our enterprise payments capabilities and investing in the solutions and tools our customers need to run their businesses more effectively,” said Emma Loftus, executive vice president and head of PNC Treasury Management . “By leveraging Linga’s proprietary solutions and PNC’s competitive treasury management platform, we will be able to provide our restaurant and retail customers with the tools they need to keep pace with ever-changing consumer expectations. “

Dan Bowman is Vice President at MelCap Partners, LLC, a middle market investment banking advisory firm. For more information on MelCap partners, visit www.melcap.com or E-Mail [email protected].

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