Published on August 2nd, 2023
Our theme this month, on the heels of the Q2 numbers, is that maybe we are turning the corner…Key considerations:
I. Inflation Implications? Yes, we are all tired of it, but we have to deal with it…. Year on year in June, the US economy experienced the smallest advance since March 2021, representing a twelfth straight month of a cooling trend.
Expectations: After a June pause, the Fed raised interest rates during the July 25/26 meeting by 0.25% to a span from 5.0% to 5.5%; next steps for deal makers is to digest the results of what will then be eleven Fed hikes from March 2022 through July 2023. Our best hope is a ‘hold’ for the balance of the year, and we find a runway for a soft landing – we’ll have to wait and see though as the September Fed plan of action remains unclear. (Note for our Canadian clients: The Bank of Canada is expected to continue hikes with a likely target of 5%, - the highest in 22 years.) [Source: Bloomberg 7-12-23/Investopedia 7-13-23.]
II. Animal Spirits Prevail
The business sentiment among CEO’s is making a positive pivot as well:
III. Some Liquidity, please….and thank you!
Four material M&A sales and IPO listings closed the Quarter providing US private equity a well needed opening in exits, which has been ‘limited’, really almost non-existent for over a year.
Exit values increased significantly over the last quarter, a welcome shift from the collapse six quarters previously.
The finance stack continues to stabilize with LBO debt dropping in 2023 reflecting an average loan-to-value ratio of 43% this year, a 21% decrease from the five-year average of 52%.
All 23 banks passed the Fed’s stress test – a well needed confidence builder in terms of accessing capital, albeit still relatively expensive capital. [Source: Pitchbook July’23]
IV. The Bunge-Job Market is Normalizing
Worldwide job reductions were the lowest since December and represented a 25% drop from May as well as the fourth decline in five months. (Note: The past year was extreme, particularly after the lower-than-average layoff cycles in 2021 and early 2022 - the trend towards normalization is welcome). [Source: Bloomberg July’ 23]
Downsizing dynamics are also less aggressive: in Q2 the average reduction in force (RIF) was 8% compared to roughly 10% in the earlier two quarters. [Source: Bloomberg July’ 23]
V. Healthcare Deals Remain….well, Healthy
We cover most verticals but lately we have been particularly busy in healthcare. This is not surprising with approximately $37 Trillion spent annually in the US on chronic illnesses, the segment is becoming increasingly complex. Our demographic bubble portends unsustainable spending trends, driving the need for consolidation and efficiencies through applied technologically and digital platforms. In addition to wearables, robotics, and AI, we are tracking the following on behalf of our clients:
Automated medication compounding/management and dispensing technologies that shave pharmacy costs, optimize inventory management and increase medication adherence.
Telemedicine, propelled by Covid driven adoption rates, continues to propel innovation in virtual care; in this broad segment, mental health remains remarkably resilient and opportunity rich, accounting for approximately two thirds of digital (virtual) health care claims.
Wearables, specifically monitoring patches- (using Bluetooth technology for telemetry), enhance patient comfort/compliance, support the efficient curation and aggregation of data – (the fuel for AI) and are now the drivers to detect and diagnose irregularities driving chronic conditions. A key example of monitoring efficacy is the trifecta of: i) Heart failure - (Afib is the acknowledged precursor); ii) Sleep Apnea – (note the correlation that 25% of heart failure patients also suffer Afib); and iii) Hypertension – (note again the data identified correlation that approximately 90% of Afib sufferers also have hypertension).
[Source: GlobalX ETF: Fierce Healthcare Jan, 2023/FAIR Health Monthly Telehealth Regional Tracker 2023/iRhythm Technology Presentation May 2023]
The point is unprecedented shifts in sourcing, curating and analyzing real time data is central to the identification of relevant crossover trends driving new methodologies, efficiencies and business opportunities – this is a brave new world!
Summary & Call-to-Action:
Key assumptions supported by the trends noted above as we enter Q3 2023 are:
Inflation trending downwards with critical inflationary categories slowing, and possibly providing some room to maneuver for the fed and deal makers to manage assumptions. (The forty year high of 9.1% has fallen by two thirds but hitting the 2% target will still require steely focus - nevertheless, we can work with this trend.)
Confidence is rebuilding and the radical ‘right-sizing’ within the job market is stabilizing.
Liquidity events are starting to show signs of life, and finance stacks are adjusting, hopefully opening the deal ecosystem once again.
Technology, particularly in healthcare, is the definitive case study for Schumpeter’s ‘creative destruction’. There should be plenty of activity here.
Relative to the last six quarters these trends represent a positive confluence and should generate the confidence to reengage, review your strategy / plan of action, and with that, consider what Investment Banking transactions are needed to support you. We’ve managed through these cycles before. Experience counts and we are well positioned to support you. Call with any questions and look for our August update.
*** The content is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional(s) before entering into any M&A transaction. ***
For More Information, Please Contact:
Mark offers over twenty years of experience managing all facets of investment banking (M&A, VC/PE and IPOs) as well as company operations; additionally he offers the ability to orchestrate resources and manage the process/personalities required to close complex transactions. Licenses: Series 7, 24 and 63.
Mark Mansfield, Principal MM@GlobalCapitalMarkets.com
Direct: (949) 400-3760
Kimberly Valentine-Poska - Principal
Direct: (949) 933-7730
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