M&A Activity During A Recession

Posted on February 27, 2023 By

With discussions of a recession looming, business owners may display concerns about the timing of going to market to sell, asserting that the economic downturn will not be beneficial if they were to go to market. In fact, acquisition opportunities present a significant value creation prospect for private equity groups, which tend to increase mergers and acquisitions during a recession for various reasons.

Private equity groups adjust their strategies based on micro and macroeconomics. Their goal is to buy and build businesses that offer a return for their investors. Their investors tend to be institutions, insurance companies, pension companies, etc. Private equity firms are focusing on value creation after acquisitions by adjusting to the new macroeconomic environment concerns, such as increasing inflation, challenging labor markets, and increasing interest rates, all while trying to optimize economic growth with appealing strategies to potential sellers based on the firm’s exit plan.

For example, clients who are concerned about employees remaining after a sale will find confidence in recent strategies from financial buyers concerning changes in headcount reduction strategies. Typically, headcount reduction is one common strategy that quickly increases revenue for acquirers. The challenges in the labor market, however, have led private equity firms to find that they can increase revenues without reducing company headcounts. Experts in their associated fields are more valuable than ever, and private equity firms are taking notes. Consolidating synergistic companies and operating departments has been shown to improve cash flow by over 20 percent, with an actual increase in headcounts rather than a decrease.

More specifically, private equity firms are looking to increase managerial economies of scale with the labor force challenges. As they grow organizations, financial and operational benefits present themselves. More experts and specialized business units result in a more efficient labor force and more effective leadership. For example, with an acquisition, one can have dedicated experts in different categories of the business who can perfect necessary businesses processes, but a single business may not be able to afford to add those separate experts or leaders, often leading to one person filling many roles with less focused or categorized expertise and a lower cash flow.

Feeling unfulfilled? Explore your options...

Another strategy that private equity groups utilize through a recession is that bigger organizations have the benefit of higher credit ratings and obtaining more favorable interest rates, appealing to potential acquirers who are looking to improve cash flow. There is also the economy of scale that benefits larger organizations. Larger firms have the capability to buy the goods and services they need in larger quantities, leading to profits through supplier negotiations or bulk discounts. In technical fields, clients who can support larger numbers of new customers can increase profits with a larger size.

Private equity firms still have a large amount of cash on their balance sheet that they need to invest, also known as dry power. According to Pitchbook, as of Q3 2022, private equity has about $1.2 trillion of dry power. Private equity will continue to be pressured by their investors to utilize the cash to make investments in the coming quarters.

According to Harvard Business Review, evidence from previous financial crises or economic downturns show that companies that made acquisitions during an economic downturn outperformed those that did not. While economic downturns present challenges, the plentiful opportunities for value creation through investments and acquisitions are ready for the taking. Clients may even see more aggressive bidding from investors as competition for deals increases.

Typically, a private equity group will hold its platform investment for five to seven
through acquisitions. Given the buying flurry over the last two years, firms will take the opportunity to position their holdings for sale after the pending recession or economic slowdown passes.

In summary, if we enter a recession, as anticipated, mergers and acquisitions activity within the lower middle market will continue to remain strong.



Schedule A Call





Americas: Sam Smoot at +1 (813) 898

Europe: Michael Lawrie at +44 (0) 161 359

Africa: Anthony McCardle at +27 21 300 2055 / 


Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $8.25 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the #1 Sell-side, Privately Owned M&A Advisor in the World by Pitchbook’s Global League Tables.





in 'Benchmark International'
in 'Benchmark International'
in 'Benchmark International'
in 'Benchmark International'

Recent Posts

Subscribe to Email Updates

Follow Us on Twitter


see all