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Rollover Equity Helped 2023 Deals Across the Finish Line

GF Data’s Bob Dunn shared 2023 M&A data to select dealmakers at ACG Atlanta’s recent M&A South

Rollover Equity Helped 2023 Deals Across the Finish Line

Dealmakers held tempered expectations for 2023’s M&A performance. After record volumes and valuations seen across 2021 and ’22, investors navigated 2023 well-aware that dealmaking performance wouldn’t be able to live up to the abnormally strong performance of previous years, especially with surging interest rates.

GF Data’s latest insights confirm as much. Bob Dunn, the managing director of GF Data, an ACG Company, shared 2023 insights during a private roundtable discussion at the recent ACG Atlanta M&A South 2024 event, held on Feb. 5. A select group of dealmakers including private equity and strategic investors, family offices, lenders, advisors and other M&A partners were in attendance.

While some dealmakers might have expected a doom-and-gloom retrospective when looking back at 2023’s performance, Dunn explained that the numbers offer some intriguing—and not entirely pessimistic—insights.

“For the most part, we don’t have a valuation issue—we have a deal volume issue,” he summarized.

ACG Event Recap

WHAT: GF Data’s Private Equity Mid-Market Overview 2023 Roundtable Discussion

WHERE: AGC Atlanta M&A South 2024 in Atlanta, GA

WHEN: Feb. 5-6, 2024

THE TAKEAWAY: GF Data’s analysis found suppressed deal volume in 2023, as expected, with a rise in rollover equity helping transactions get across the finish line.

GF Data’s analysis, which examined transactions with enterprise values between $10 million and $500 million, found average Total Enterprise Value (TEV) for 2023 deals hit 7.3x EBITDA—not a far cry from 2022 and 2023, which each saw average TEV hit 7.6x EBITDA.

It was the number of deals that made it across the finish line that reflected the slump: 2023 clocked in 269 deals, compared with 331 in 2022, and a whopping 501 in 2021.

Deal Term Shifts

“Cautious optimism” is the name of the game for dealmakers in 2024, several M&A professionals attending the roundtable discussion agreed.

For some investors and sellers, would-be deals that failed to make it across the finish line late last year could be pushed to completion in 2024, particularly with interest rates expected to come down in the middle of the year (though, as one attendee suggested, dealmakers may be a bit too optimistic on the Federal Reserve’s rate cut plans this year).

“It’s kind of shocking how quickly interest rates on senior debt have gone up,” reflected Dunn. GF Data’s numbers do show a decline in dealmakers’ reliance on senior debt to complete transactions as costs have risen: across platform deals completed last year, 31.2% was made up of senior debt, compared to 34.1% in 2022 and 36.7% in 2021.

As a result, 2023 dealmakers relied more on equity contributions in deal structures. Notably, M&A activity saw an uptick in rollover equity, particularly in deal values between $50 million and $100 million (nearly 20% of these transactions employed rollover equity).

Related content: GF Data Report: Q3 Shows Valuations Rebounding

Several audience members agreed they’ve seen more use of rollover equity in their deal structures. According to one audience member, the opportunity for a seller to reinvest in the business post-transaction could appease their appetite for higher price tags in an M&A environment where buyers and sellers still aren’t seeing eye-to-eye on valuations. “The experience we’ve had has really been around the seller not getting the price that they want,” this dealmaker said, “so [rollover equity] is an incentive to give them an opportunity to realize a more valuable transaction which they can’t realize in today’s environment.”

“More participation with sellers on rollover equity and seller financing can be a nice bridge where there are questions regarding valuation,” agreed Dunn.

With interest rates remaining elevated and dealmakers retaining a “wait-and-see” approach to investments, the middle-market M&A landscape could continue to see an increase in rollover equity into 2024.

Stay tuned for a Q4 2023 M&A update with GF Data’s Bob Dunn and FORVIS’ Scott Linch, coming soon to GrowthTV.



Carolyn Vallejo is Middle Market Growth’s digital editor.


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