Capital Markets and Valuation – What’s Happening-Capital Markets and Valuation

Capital Markets and Valuation – What’s Happening Slides

Pdf Summary

This confidential presentation by Chartwell Financial Advisory, prepared for the ACEC Webinar Series on February 8, 2023, provides a comprehensive update on capital markets and valuation trends affecting the Architecture and Engineering (A&E) sector.<br /><br />Macroeconomic insights highlight the positive impact of the Infrastructure Investment and Jobs Act (IIJA), expected to add $132 billion in industry revenue over five years, driving a 5.6% annual growth in engineering and design services. However, challenges include inflation, rising interest rates, labor shortages, and supply chain delays.<br /><br />In capital markets, U.S. M&A activity has declined significantly over the past year, with deal volume down 22% and aggregate deal value declining by 42%, particularly for deals over $250 million. Valuation multiples (EV/EBITDA) notably contracted for smaller transactions, while larger deals maintained relative stability. Debt capital markets faced headwinds from inflation and Federal Reserve rate hikes, reducing leveraged loan issuance by nearly half in late 2022, while increasing borrowing costs and lowering debt capacity. Non-bank lenders are emerging as flexible financing alternatives, offering higher leverage with lower amortization but at a higher cost than traditional banks.<br /><br />The A&E market showed resilience with mostly stable revenues and profits in 2022, though valuation multiples decreased by 20-30%. Sector M&A volume remained relatively flat, outperforming the broader market decline. Valuation methodologies indicate a slight year-over-year decline of about 5% in enterprise value via public company comparisons, while M&A valuation remained flat. Discounted cash flow valuations were down 8-10%, reflecting higher cost of capital due to increased risk premiums and interest rates.<br /><br />Looking ahead to 2023, Chartwell anticipates potential credit market improvement and renewed equity investor interest, contingent on economic factors and Federal Reserve actions. Inflation, economic recession risks, and market volatility remain concerns, but moderated unemployment rates suggest a possible "soft landing." M&A activity is expected to increase as buyer and seller expectations align.<br /><br />Overall, Chartwell emphasizes a cautiously optimistic market outlook with continued inflation and interest rate pressures impacting company valuations and financing options in the A&E sector.

Keywords

Chartwell Financial Advisory

ACEC Webinar Series

Capital Markets

Valuation Trends

Architecture and Engineering (A&E)

Infrastructure Investment and Jobs Act (IIJA)

Mergers and Acquisitions (M&A)

Debt Capital Markets

Non-bank Lenders

Economic Outlook 2023