Dealmakers predict M&A trough in private-market deals may smooth out in coming months

By Steve Gelsi

Commercial banking chief at Citizens Financial sees more active Q4 ahead

While the latest monthly figures point to a sharp drop in global private equity and venture capital deals, private M&A dealmakers have grown more optimistic about the prospects for the end of the year.

Global private equity and venture capital deal volume declined 36% in July, to 828 transactions from 1,290 a year ago, according to S&P Global Market Intelligence data.

The total value of global private equity and venture capital deals rose 10% in July to $44.3 billion, with the help of one megadeal, GTCR LLC's $12.7 billion acquisition of 55% of payment processing services provider WorldPay (UK) Ltd.

Year-to-date total deal value as of July 31 dropped by 44% to just under $276 billion from $493.4 billion. Deal count fell to 6,850 from 11,000 during the same period.

In the U.S., middle-market private-equity deals comprise a large chunk of the overall deal count.

Here, the worst of the M&A lull in middle-market private market deals seems to be over, dealmakers have said recently.

"Activity has started picking up," said Donald McCree, vice chairman and head of commercial banking at Citizens Financial Group Inc. (CFG), which focuses on M&A deals of $100 million to $1 billion.

With the Fed only expected to hike another 50 basis points in total, some stability is coming back to the market,

"People are in a better mood," McCree said in a phone call with MarketWatch.

He said he sees the bank's deal pipeline as much healthier than it was six months ago, with expectations of a busy fourth quarter.

Investment banking advisory on M&A deals is traditionally a lumpy business, but it's been particularly quiet in 2023 as buyers and sellers sit on the sidelines for a variety of reasons.

One reason is because of "noise" in cash flow numbers from either positive or negative effects from the COVID-19 pandemic as well as supply chain constraints, McCree said.

Such factors make it more difficult to establish solid buy and sell prices for companies. The financing market has been challenged as well because of higher interest rates.

McCree said market players are slowly realizing that interest rates may be higher than they were in recent years, but they're still not high by historical standards.

"Buyers and sellers are starting to reconcile values while other sellers have been waiting for years now and they just want to get out," McCree said.

Goldman Sachs Group Inc. (GS) Chief Executive David Solomon said last month that the M&A market has been as weak as it has been in a decade, but it won't likely stay that way for an extended period.

"I know this activity level of 10-year lows in investment banking activity is not going to be the normal on a forward basis," said Solomon, when asked about any green shoots in the deal-making business.

Also read: Fitch lowers U.S. banks' 'operating environment' score a notch to aa-, says higher interest rates a factor

-Steve Gelsi

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08-18-23 1406ET

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