Introduction:
This article provides Narrative’s perspective on PitchBook’s 2023 Annual US PE Breakdown, focusing particularly on recent Deal Count, Deal Value, and EV/EBITDA Multiple data.
The Key Takeaway: While 2023 was a less M&A active year than 2021 and 2022, it was a strong year in historical context.
Key Points:
1/ 2023 Activity Down Compared to Past Two Years
The deal market slowed meaningfully in 2023 compared to the prior two years.
PE Deal Count decreased by approximately 16% from 2022 and about 24% from 2021.
Aggregate PE Deal Value also declined significantly, ending around 30% lower than 2022 and a whopping 46% lower than 2021.
The implied Average Deal Value shrank by roughly 16% compared to 2022 and 28% compared to 2021.
In combination, these trends suggest fewer large deals, balanced by many smaller deals and "add-on" acquisitions by private equity firms.
2/ Valuation Off To a Lesser Degree
Enterprise Value (EV) to EBITDA multiples also declined in 2023, though to a lesser extent than Deal Count and Value.
EV/EBITDA multiple in 2023 was approximately 8% lower than in 2022 and 11% lower than in 2021.
3/ An Expanded View Provides a Richer Picture
It's crucial to consider the extraordinary nature of 2021 when evaluating recent market trends.
2021 was a record M&A year across most categories and especially for Aggregate Deal Value, which was significantly greater than typical levels.
When compared to the last 5- and 10-year averages, a more favorable view of 2023 emerges:
2023 Deal Count was ~4% down from the last 5-year average, though up significantly (around 16%) compared to the last 10-year average.
Similarly, 2023 EV/EBITDA Multiple was ~2% down from the last 5-year average, though up ~8% compared to L10Y.
4/ Indeed, 2023 was a Top Quartile Year
In the context of the Last 10 Years:
Despite the relative downturn in recent years, the 2023 market performed remarkably well when viewed against a longer historical backdrop.
Consider the following to fully appreciate what this data suggests:
2023 was a Top Quartile market for Deal Count and EV/EBITDA Multiple, across a sample period that includes many years of near-zero interest rates and most of the second-longest bull market in history.
Conclusion
While 2023 activity dipped from the peaks of recent years, the broad market remained vibrant when benchmarked to history.
In particular, smaller and mid-sized deals led the market, indicating a robust and active lower middle market, despite a market narrative dominated by a slowdown in larger deals.
