The prospect of a recession has companies looking for economies of scale and this coincides with a drop in valuations that is making investors act like strategics.

Public market travails have effectively shut down IPOs as an exit strategy, but family-owned businesses still need to pass on their enterprises, creating opportunities for M&A specialists in sectors like wealth management.

“Every sector has its opportunities,” says Jeff Levine, who heads up financial services at Houlihan Lokey.

There is a roll-up of registered investment advisers as firms look for profit and owners don’t see their heirs clamoring to get into the business.

“Baby boomers are retiring,” says Levine. “There is a generational wealth transfer.”

A leveling in technology is enabling fintech firms to compete more effectively in numerous areas previously dominated by the regulated financial institutions.

Banks are retreating from specialty lending, for instance, as floating interest rates are rising, and fintech firms can be smaller and nimbler in adapting their products and services.

Banks are also shedding risk. Credit Suisse’s November sale of most of its securitized products business to Apollo Global Management is emblematic of that trend, Levine notes, as the troubled Swiss bank moved to free up capital for its core activities.

“Deals have to make sense,” says Levine, and maybe more sense that they did before, as it’s getting harder to sell a dream.

Insurance distribution, for example, offers not only the bigger customer base sought by many acquirers, but also permanent capital and long relationships.

Mega cap deals just aren’t getting done, Levine acknowledges. This applies to the field that he focuses on – mortgage lending – but he is not worried.

“We’re busy. Good deals are getting done,” says Levine, who targets middle-market firms, with a focus on privately held mortgage networks.

The rise in interest rates has dampened home sales, but the slow market forces lenders to consolidate, Levine believes.

And high rates are relative. “My first mortgage was 11 percent,” Levine recalls. People still need houses. He spends a lot of time on the phone calling realtors to keep track of the market.

A down market gives an advantage to strategic investors, who stand ready to snap up bargains, and there is excess capacity in the mortgage market. One side effect is that is a good time to pick up talent.

Many mortgage lenders, too, feel the pressure to plan succession, forcing sellers to be realistic in their valuations, Levine says.

Even if the timing is not opportune, there will be deals. “Selling a company is a lot like selling house,” says Levine. “Sometimes you have to sell.”

Darrell Delamaide