Private equity tends to turn to investment bankers to take the pulse of the market. Historical data on deal volume and value tells you what transactions have closed, but to get color on what deals are in the pipeline or could draw particular attention, lean on someone in the center of the action. Axial’s latest note provides the same insight, less the fee: by tracking deals that haven’t been announced yet from letter of intent to binding offer, we can see where activity is heating up in something more akin to “real time.”
The biggest takeaway? In the middle market, transportation and healthcare are drawing outsized buyer and seller interest relative to technology and broader industrials.
That point is buried in prevalent data about deal value and volume, which indicates a clear preference among dealmakers for technology deals. But in the second half of last year, healthcare and transportation began to outperform. In fact, transport takeover targets grew 38 percent over 1H21, besting healthcare (15 percent) and consumer goods (12 percent). Technology and broader industrials posted momentous declines of 33 percent and 9 percent respectively.
Caveat: this insight is based on deals tracked on the Axial platform alone, which included 7,500 new targets in 2021.
Axial’s Winter 2022 report is also full of other notable insights into the changing dynamics of the lower middle-market. The competition that characterizes large PE deals is migrating to the market for smaller deals thanks to add-on acquisitions, and new entrants, Axial says. “There’s a larger population of family offices, HNW (high net worth) investors, search funds and independent sponsors, most of whom have made the lower middle-market their home,” the report reads.
New bidders and new targets could posture defensive industries for more merger interest as the year moves on.