By Matt Castleberry
2021 saw historic acquisitions, IPO’s, mergers, and investments. Many companies saw historic growth. Some investment funds we’ve spoken with experienced average organic growth trends from ~24% to ~90%, whereas other companies grew by acquisition. What are some of the things to consider this year and what is the deal fl ow outlook? Let’s break down some of the challenges to consider that will have an impact on economic growth, public and private markets, deal fl ow and our community.
Challenges to consider:
Russia initiates war with Ukraine. There are obvious concerns from a global perspective on what happens if the US steps in to help. Sanctions may curtail the immediate problems but if other nations step in on Russia’s behalf there are some deeper implications about what a world war would do to the US economy.
U.S. Inflation, according to the National Bureau of Labor Statistics, inflation hit 7.5% in January of 2022, the highest since February of 1982. Labor shortages, supply disruptions, energy costs and high demand all contributed.
Interest Rates will likely continue to rise over fed concerns from historic inflation rates. Fed Chair Powell said, “We will need to be nimble in responding to incoming data and the evolving outlook”. This should curb inflation as the Fed raises interest rates slowly to defer inflation over a longer period of time.
The Job Market has also been a challenge. The national unemployment rate recently hit 4% with Utah hovering around 2.1%. It’s difficult to grow a company without hiring good people to help manage the growth. Finding executives has become increasingly difficult.
These are only a few of the many challenges facing us this year. Several others that need consideration we could discuss include Supply chain problems, Cost of living/Housing, Global Pandemic concerns, and public v. private markets.
Opportunities despite these challenges:
The US saw a record number of deals in 2021, but several sources I spoke with don’t see the 2022 deal fl ow slowing down. One M&A attorney suggested, “Investor cadence feels similar to 2021.” While all the challenges above are still applicable, many funds just raised within the last two years and need to deploy that capital over the next 4-6 years. A Colorado investor I spoke with suggested, “if a global pandemic doesn’t slow down investors, why would inflation, interest rates or even war overseas slow down that investor sentiment?”
A Los Angeles M&A attorney I spoke with said, “For a transaction to happen you need a willing and capable buyer and a willing seller. Prices are still attractive and higher than they’ve been, so sellers are still seeing dollar signs.” The markets still have some uncertainty that brings more rationality to sellers, so deals may be even better this year based on seller expectations. Buyers still have plenty of money to invest and there are many great opportunities out there. Some investors I spoke with are overlooking great opportunities due to the amount of deals they’re working with in the market right now. On a macro level, if you consider traditional small businesses, labor is a huge issue. An investor we spoke with in Phoenix is looking at the impact on the low wage work force. He suggested that an ease on immigration has been helpful as it’s more simple to bring in migrant workers with visa programs, especially for seasonal work. There is a gap in the labor force where reasonable costs for specific services have traditionally been filled by migrant workers. This labor gap is beginning to level back out and these costs are getting passed along to the end consumer. Prices and supplies seem to be stabilizing.
Another contributing factor for Utah is that there is a very close-knit market due to the family emphasis. This draws a lot of higher-level executives as well as the recycling of investment dollars from previous exits. Another consideration is the “sprawl factor” which opens up the opportunities for land development into more, traditionally, rural areas outside the larger Wasatch Front area.
Overall, we know there are some unusual challenges facing 2022 on a national level, and there are also many amazing opportunities. How does this apply to Utah’s market? Without a crystal ball it’s hard to say for certain, but whether it’s supply chain concerns, market pullbacks, hiring or obscene valuations, 2022 is highly likely to be unforgettable.
About Matt Castleberry, Partner, Ampleo
Matt Castleberry is the Director of Client Relations and Business Development for Amplēo. He has been involved in sales and marketing in a wide variety of industries including, Transportation, Finance, Banking, Advertising, HVAC, and Healthcare. He has worked for company’s ranging from LTL fr eight to lease fi nance. Matt ran and operated his own company and has worked directly with owners for several others in their growth and/or turnaround efforts.