There are a lot of manufacturers out in the market looking to buy. Many “strategic” buyers are taking advantage of healthy balance sheets that are bolstered by a lot of cash. A few weeks ago, I attended a presentation by an investment banker that cited publicly-available estimates of nearly $3.5 trillion in cash reserves among middle market companies.
“Multiples” remain high in certain sectors, including aerospace and defense, food and beverage, and other advanced manufacturing. As a result, buyers of all types are looking for transactions that are not the subject of an auction, but rather can be achieved in a private way.
While COVID-19 certainly changed the way transactions and due diligence were performed, in some ways I think it “shrunk” the world, as many of our clients are looking beyond their borders for potential companies to buy. With that said, there have been some shifts on where people are looking to buy.
A recent publication by global accounting firm E&Y confirms this point:
According to analysis by EY, the nature of cross-border deals is changing to reflect geopolitical tensions on the world stage. While cross-border transactions levels in H1 have decreased (24% in 2022 vs an average of 30% over 2015-19), the share of cross-border deals among closely affiliated countries has increased (51% in 2022 compared to an average of 42% over 2015-19). The analysis finds that investment from China into the US has fallen from US$27b at the highpoint in H1 2016 to US$1.9b, while North American investment into Europe have increased from US$60b to US$149b over the same period.
This analysis confirms two things I am hearing anecdotally. First, that manufacturers of all sizes are looking at transactions in “friendly” countries. Second, that the interest in Europe has increased for several reasons, including the strength of the dollar. Companies are looking for “deals” in Europe and I expect that to continue.