There’s good news and bad news. The bad news is that dealflow is continuing to plummet. The good news is that dealmakers still insist that better times are right ahead. Here’s why.
“We’ve noted a measurable increase in dealflow throughout Q1 2024 in both quantity and quality,” says Lincolnshire Management Co-Managing Partner Tad Nedeau. “We expect this trend to continue into Q2. Dry powder continues to grow, the potential for continued easing of interest rates improves the general deal outlook, and pressure continues to build for firms to put money to work.”
According to data provided by LSEG, there were 175 middle-market deals worth close to $49.9 billion in the first quarter. This is down from 219 deals worth about $62.8 billion in the first quarter last year. In March alone, there were 56 deals worth approximately $16 billion compared to 71 deals worth around $20 billion in March 2023. The LSEG data is based on North American completed deals worth between $100 million and $1 billion.
Christopher Keefe, the chair of Nixon Peabody’s business and finance department, says deal pipelines are full, but they just need to translate into more activity. “I think you’re going to continue to see middle-market deals getting done with less leverage or no leverage at all,” he says. “There’s still a spread between sellers’ expectations and buyers’ willingness, but I think that has closed to some degree. Activity has picked up based on what’s in the collective pipeline. It’s just a matter of how much of that translates into execution and how quickly those deals get to closing.”
The technology, energy and healthcare industries were the top three performing sectors through March this year in terms deal of value with volume totals coming in at approximately $10.3 billion, $7.6 billion and $6.5 billion, respectively. In the technology sector, all the talk is about AI, while in healthcare, PE firms are looking for pockets of opportunities to create new platforms.
One notable deal that was completed in March was GTCR’s acquisition of Cloudbreak Health in a corporate carve-out transaction from UpHealth. Cloudbreak is a video-focused language interpretation service provider that helps patients with limited English proficiency, as well as deaf and hard-of-hearing populations, communicate with caregivers in healthcare settings. Carve-outs are always a good way for mid-market PE firms to find deals.
Another deal that stood out in March, was Merck’s (NYSE: MRK) $680 Million acquisition of cancer drugmaker Harpoon Therapeutics. Merck said it is ramping up its cancer drug pipeline through acquisitions. In October, the company agreed to buy the rights to sell Daiichi Sankyo’s three experimental cancer drugs in a deal that involves $4 billion upfront and as much as $22 billion in potential future payments.
In the league tables, Goldman Sachs (NYSE: GS), TD Securities and Moelis (NYSE: MC) hold the top three spots in terms of deal value (about $4.5 billion, $4.2 billion and $4.1 billion, respectively) and market share (about nine percent, 8.4 percent and 8.1 percent, respectively).
See the full list of March’s biggest mid-market deals here.
