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Climb Another Peak? – December 2023 M&A Activity

Climb Another Peak – December 2023 M&A Activity

Global M&A activity in 2023 fell approximately 20% compared to 2022, according to Bain & Co, a global business consulting firm. Within that larger context, deals completed in 2023 by private equity firms were off a whopping 35% from the level reached in 2022. Strategic deals, in which one operating company buys another operating company, were down 14%. The general consensus is that the primary culprit was higher interest rates which made deals more expensive to finance. Layer that higher funding cost on top of sellers’ expectations of a higher enterprise value driven by the past decade of low interest rates, and a value perception mismatch developed. That mismatch drove down the number of successfully completed M&A deals.

How Did Our Industry Measure Up?

To find out how the printing, packaging, and related industries fared in M&A terms for the 2023 calendar year, we updated our stats from our annual review which we publish each September that covers the trailing twelve months ended in August each year (See The Target Report Annual Review: 2023 M&A Activity). Our analysis revealed that the trend in deals in the printing, packaging, and related industries, measured by the number of transactions announced in 2023, very closely tracked the decline in overall global strategic transactional activity. M&A deals in our corner of the business world declined 14.3% from 2022, an almost spot-on match to global trends. Maybe we should not be surprised, as the same mismatch between buyer’s higher funding costs and sellers’ expansive value expectations was evident in the industries we follow and work in.

Several distinct, but closely related, trends became apparent to us at Graphic Arts Advisors as summer progressed into autumn. The following are our observations on the M&A market in the lower middle market for printing and packaging companies as we close out 2023.

What Happened #1 – The End of Post-Covid Demand

The pent-up demand from the Covid shutdown was unleashed in 2022. The increase in demand impacted many sectors of the economy including printing, packaging, and related graphic communication companies. During the past year, we had the privilege to speak candidly with many owners who reported that their companies had enjoyed significant boosts to revenue in 2022, as compared to the prior year. Reported increases were often in the 20% to 25% range, and some even higher. When the disciplined expense management and reduced headcount that Covid made necessary met those higher revenues, profits at many companies soared.

As 2023 unfolded, the pent-up demand was satiated. Demand and production capacity are reasonably back in balance. With the benefits from the post-Covid demand bubble behind them, many companies struggled to repeat their 2022 financial performance. Nonetheless, after the heady days of 2022, some sellers had expectations of an unending upward growth curve. For many, as 2023 progressed, it became clear that the curve was flattening or turning downward. Unable to support an ongoing 20% growth story, some owners became disenchanted with their exit prospects and withdrew from the market.


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