NH Business: Dealmakers ready to come to the M&A table in 2023

Jan. 14—LAST WEEK, Bloomberg reported that Goldman Sachs plans to shed nearly 3,000 employees as volatile global financial markets crimp corporate deal-making.

While it might be a tough time for Wall Street investment bankers, middle-market companies and private equity firms are generally upbeat about their prospects, according to Citizens' 2023 M&A Outlook.

The annual survey of 400 industry leaders released last week said they expect merger and acquisition activity will return to pre-pandemic norms. Sixty-two percent of buyers cited growth as as their primary motivation, compared with 48% the prior year.

"A lot of companies have come out of both COVID and 2022 with very strong balance sheets, with management teams that have learned a lot through both the COVID impacts but also getting through the inflationary impacts of 2022," said Joe Carelli, Citizens bank president for New Hampshire and Vermont.

Carelli, who oversees activity in six New England states and upstate New York, said inflation, interest rates, supply chain issues and energy costs appear to be stabilizing, prompting businesses to be optimistic.

"They have better visibility going into 2023 perhaps as they did going into 2022," he said Thursday.

Hot sectors include technology, business services, aerospace and defense, and health care, Carelli said.

"As opposed to a sector like transportation and logistics, where given perhaps some softening of demand for some consumer goods, might cause those companies to really rethink what the future might look for their prospects," he said.

The lodging industry is also making a comeback, with revenues per available room, average daily rates and occupancy rates ticking up.

"People are out again, people are traveling and they are spending nights in hotels. That bodes well for our economy, especially in a state like New Hampshire where we rely so heavily on tourism," Carelli said.

Prove-it-to-me deals

Manchester law firm McLane Middleton is expecting a good year with a decent amount of activity, said Dennis Haley, who works on M&A deals with both buyers and sellers.

The firm recorded one of its busiest years ever in 2021 and was nearly as busy last year, he said. Higher interest rates may tamper activity in the year ahead, but he still expects to be busy.

"It might not be off the charts like it was a couple of years ago, but I think we're optimistic too," Haley said Friday.

He is working on several active deals right now and has a couple of letters of intent in the pipeline. What happens with interest rates will be a big factor on how transactions play out.

"If you're financing with bank debt, it's going to make the transaction more expensive. So maybe you try to beat the seller up a bit on the purchase price. We might see a little bit of that," he said.

A "prove-it-to-me" deal he's working on right now has a significant earn-out component, where the seller won't receive the entire payout until well after the deal closes.

"It's basically, 'Hey buyer, prove that your company is worth what I'm paying for it. I'm going to pay you some cash at closing, but a big piece of what I will pay you is at the end of one or two years when I have successfully earned the same money or more that you earned when you ran it," Haley said.

Another trend Haley is seeing is business owners who aren't ready to retire but don't want the headaches of owning a business anymore, such as a veterinarian who loves to take care of animals but doesn't want to deal with hiring, IT and building maintenance.

"Some of that might be a product of the couple of years we've just been through," Haley said.

He's also seeing a lot of interest from private equity firms for mom-and-pop online stores that do business through Amazon and don't have a physical location.

"Those little stores are getting the attention of private equity, and they are buying up dozens of them," he said.

Mike Cote is senior editor for news and business. Contact him at mcote@unionleader.com or (603) 206-7724.

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