Happy Monday, dealmakers! Aaron here filling in for MK Flynn. This will be the first of three times you will hear from me this week.
Dealflow. According to Firmex’s Q4 dealflow report, deals in North America will increase by 43 percent from the third to the fourth quarter. That would leave deal activity in the third quarter “about even” with the same period in 2021.
Despite the threat of recession, deal volume seems to be holding steady in Q4. Some 43 percent of respondents to the survey in September said deal volume would increase in the final quarter, the first time the number of positive respondents had risen all year, with only 19 percent of respondents expecting dealflow to decline.
While the respondents in the survey haven’t seen much change in deal volume, their perception of valuations have shifted sharply. Only 7 percent now say company prices are “very high,” down from 45 percent in January.
Now, 48 percent describe prices as “above average,” compared to 30 percent in January. Still, only 9 percent say prices are “below average” or “very low.”
The outlook for prices in the future is also getting gloomier. Only 5 percent of respondents predicted valuations will head up, and 54 percent said prices will fall. Six months ago, optimism reigned, with 35 percent predicting further increases in valuations and only 23 percent (correctly as it turned out) expecting a decline.
While the ratio of pessimism to optimism regarding the economy increased to 3:1, a majority (56 percent) of M&A advisors said they are feeling positive about the M&A market, the first increase in optimism in a year.
Healthcare heartbeat. Late last night Signet Healthcare Partners announced that it had made a growth capital investment in LAXAI, an integrated contract research, development, and manufacturing organization that touches a variety of the healthcare chain, including drug discovery, chemical process R&D, and GMP manufacturing for innovator pharmaceutical, biotech, and specialty chemicals companies globally.
According to the press release, a “substantial portion” of Signet’s investment will be utilized to enhance LAXAI’s capabilities and establish technical operations in the US.
“Pharmaceutical outsourcing has become mission-critical within drug development,” said Nikhil Puri, managing director at Signet. “Our investment in LAXAI is an attractive opportunity for us to partner with another CRO/CDMO business that was seeking an experienced partner to help execute its next phase of growth. We were attracted to LAXAI due to its vertically integrated offering, strong scientific capabilities, customer-centric approach, cost competitiveness, and management team strength. We see a strong opportunity for Signet to leverage its network and prior CRO/CDMO investment experience to accelerate growth.”
Earlier this year, I profiled Signet as part of PE Hub’s Healthcare Spotlight series. I spoke with managing director Ashley Friedman about how the New-York based firm has completed more than a dozen investments in contract development and manufacturing organizations, or CDMOs, over the last decade.
Signet invests in three healthcare subsectors: pharmaceutical products, pharmaceutical services and medical devices.
“Each of these three sectors represents large multibillion dollar markets with significant potential for growth, which provides us with attractive investment opportunities,” said Friedman.
Recession resistant. This is one sector that has shown some resilience under the current economic environment, senior industry experts attending a ‘wealth management M&A trends in a volatile market environment’ roundtable noted last week.
According to a Fidelity report on wealth management released in September, year to date there were 170 transactions comprising $224.6bn, representing a 25 percent increase in deals. This shows a healthier phase at a time when dealflow is dropping in other sectors.
The roundtable noted that the RIA industry is becoming more fragmented and there is some notable consolidation. There is an oversupply of clients against the available advisors, opening a war on talent; and valuations are still high, but deal structures are changing, among other interesting trends. However, some buyers are expected to take a step back to assess the economic performance.
The reason, as some noted, is the willingness of PE firms to work their way in the sector. PE Hub is closely following the story and checking on more deals within this sector.
That is going to do it for me today. Craig McGlashan will be with you tomorrow and I will be back Thursday and Friday this week. Here’s to a busy and productive dealmaking week for all!