The significant dealmaking slowdown that has persisted since the second half of 2022 compounded by a challenging banking and financing environment has shaken the M&A market. This has resulted in several outcomes that pose significant opportunities for the private equity middle market.

M&A Uncertainty Leads to Innovative Deal Structures

“There is a good amount of pent-up demand for M&A. In 2023, the deals that are getting done are more like perfect fit deals. The buyer is the right buyer for the business, and they’re paying premium multiples for it.”

— Reuters report

Today’s macroeconomic environment has spurred creativity in dealmaking approaches for each deal. Because of overall risk aversion and financing difficulties, deal structures that mitigate risk and decrease reliance on cash and credit are on the rise. Prepare to encounter these structures and consider implementing them in your own dealmaking activities.

“We’re seeing creative structures to get deals done. It’s no longer as simple as cash at closing. There might be an earn-out component, with a lower purchase price upfront. Then, based on performance, the cap table gets paid more after the deal. There’s also more and more rollover. It used to be that private equity sponsors just had management roll a portion of their proceeds. We’re now seeing the whole cap team roll just so that less cash can be put up at ...