While tightening credit conditions resulting from higher interest rates, inflation and economic uncertainty have culminated in reduced middle market activity, economists indicate that middle market valuations have demonstrated reasonable resilience in recent months. This is especially so for quality businesses (lead by industrials, business services and food and agriculture businesses) where financial sponsors and strategic corporates are looking to invest and acquire. Many buyers are looking to secure supply lines that COVID-19 exposed as overly dependent on foreign suppliers. Other potential buyers represent substantial amounts of deployable capital looking for investment opportunities. Some sellers, on the other hand, may lack liquidity or capital for growth given the current uncertainty and challenging interest rate environment, and some founders may simply be ready to redeploy their capital or retire.
