Q4 2023: A Big Quarter for Small Deals

In the fourth quarter of 2023, many dealmakers anticipated a last-minute rebound that never quite arrived, but small deals were one of the surprising bright spots in an otherwise slightly lackluster period. Scott Linch, national industry leader of private equity at FORVIS, and Bob Dunn, managing director of GF Data, sit down with GrowthTV to look back on Q4 data and share their insights on what that means for the year ahead.

For the PE-backed mid-market transactions that GF Data tracked, 2023 saw 269 total transactions reported, down nearly 19% compared to 2022 numbers and a decline of 46% from 2021’s. However, valuations on completed deals increased across the last three quarters of 2023, with smaller transactions seeing the greatest increases. In the fourth quarter, deals of $10-25 million saw more than a half-turn of EBITDA improvement, compared to 5.9x trailing 12-month EBITDA in the third quarter. Deals in the $25-50 million range saw increases as well, though not as strong.

Cost of capital continues to impact deals, including increased use of rollover equity in deals of all sizes. For deals of $25 million and above, the data shows a notable uptick in seller rollover equity, averaging about 15 or 16% of the total transaction price, which is up at least five or six percentage points from last year. Rollover equity on platform buyouts hit 14.7% as well in the fourth quarter, and nearly 50% of the transactions GF Data tracked in 2023 employed either rollover equity or seller financing.

This episode is brought to you by FORVIS, a top-10 public accounting firm committed to an unmatched client experience. Learn more at https://www.forvis.com/.

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